CCT – CIMB

Ripe for the picking

• 4Q07 distribution above expectations. Despite lower-than-expected revenue in the quarter, CCT’s distribution was higher than expected due to higher contributions from its associate Quill CapitaTrust, lower interest expenses, and fewer-thanexpected shares issued for the period. Revenue was up 10% yoy to S$62m while distributable profit was up 14.5% yoy to S$32.3m. Full-year revenue was S$240.1m with a distributable profit of S$120.4m and DPU of 8.7cts, which is 1% above consensus and 2% above our estimate. As at 31 Dec 07, CCT’s portfolio reached S$5.1bn with revaluation gains of S$1.3bn.

• Ripe for harvest. Asking rents for offices should peak this year before a large supply of office space floods the market from 2009. Some 57% of CCT’s leases (by gross rental income) would be up for renewal over 2008-09. These are expected to enjoy strong rental reversions in the current supply crunch. We also expect occupancy levels to approach 100% from the already-high 99.6% at end-Dec 07. Its mixed development project, Wilkie Edge, is expected to be completed in 4Q08, and is more than 50% pre-committed for its office space.

• Upgrade to Outperform from Neutral, although target price lowered from S$2.80 to S$2.75. Our DPU estimates for FY08-10 have been raised by 0.6-4.1%, following adjustments to our assumptions for QCT contributions and gearing. CCT’s low debt-to-asset ratio of 24% will allow it to continue with acquisitions without the need for equity fund-raising in the current volatile capital markets. On the other hand, our DDM-derived target price has been lowered marginally to S$2.75 as we increase our cost of equity assumption to 5.6% from 5.3% to reflect more volatile capital markets. Nevertheless, upgrade to Outperform as the current share price offers strong upside potential of 44%.