CCT – CIMB

Fairly valued

• On track to reach target size. In July, CCT acquired Wilkie Edge, a 12-storey mixed office, retail and serviced apartment development from its parent CapitaLand for S$182.7m. We believe CCT is on track to meet its target asset size of S$5.5bn-6bn by 2009.

• Consolidation of Malaysian exposure. CCT has redeemed its junior bonds in Aragorn ABS Berhad, which owns Wisma Technip. Following this, it has limited its exposure in Malaysia to a 30% stake in Quill Capita Trust (QCT).

• Drivers of property income remain strong. An expected rise in office rentals over the next two years, asset enhancement initiatives, increased property-development potential and acquisitions should continue to drive CCT’s growth over FY07-09.

• Increasing exposure to retail sector. CCT has been growing the retail component of its portfolio. We view this positively as increased exposure to the retail sector could lend stability and sustainability to CCT’s growth in the longer term.

• Target price reduced to S$2.75 from S$3.00; downgrade to Neutral. We have lowered our DPU estimate for FY07 by 6% following adjustments to our rental escalation assumptions (our previous estimates were slightly aggressive). We have, however, raised FY08 DPU estimate by 2% on expected rental reversions in Raffles City. Our target price, still based on DDM, has been lowered from S$3.00 to S$2.75, as we now use a higher cost of equity of 5.3% (vs. 5% previously). Downgrade to Neutral from Outperform given the lack of near-term catalysts and limited upside.