CCT – UOBKH

2Q07: In Line With Expectations

Net profit up 54.0% yoy, distributable income up 84.7% yoy. CCT’s Q2 results came in line with expectations. Its net profit for 2Q07 was up 54.0% yoy to S$28.0m, while distributable income increased 84.7% yoy to S$29.3m, implying a DPU of 2.12 Scts (8.50 Scts on an annualised basis). Total return for the quarter swelled 3,137.4% qoq to S$758.5m, boosted by a net surplus of S$730.2m on revaluation of properties. For the first half results, net profit increased 40.8% yoy to S$51.4m while DPU increased 21.2% yoy to 4.23 Scts (8.53 Scts on an annualised basis).

Well-positioned to benefit in office, retail and hospitality segment. CCT is well-position in the office, retail and hospitality segment through its portfolio comprising of 74.5% by NLA of prime offices, and 60% stake in Raffles City which consists of office, retail and hotels (Swisshotel and Raffles De Plaza). The exposure allows CCT to benefit from the office rental upside through its substantial lease expiries in the next few years, improved retail yields from rigorous asset enhancement programs to Raffles City shopping area, as well as rising hotel rates.

Acquisition of Wilkie Edge. CCT has signed an agreement to purchase Wilkie Edge, a proposed 12-storey mixed development comprising office, retail and serviced apartments units for S$262.0m. Cap rates for the office and retail space are 4.5% and 5.75% respectively, while the serviced apartment units will follow the market cap rate. The development will have a GFA of 29,812 sqm and is targeted to complete in 4Q08. With the yield accretive acquisition of Wilkie Edge, CCT is on track to meet its target portfolio of S$5.0b-6.0b by FY09.

Re-iterate BUY, target price at S$3.72. We re-iterate a BUY on CCT with a target price of S$3.72, based on our DCF valuation which assumes a WACC of 5.97% derived from a market risk premium of 6.5% and beta of 0.7, and terminal growth rate of 2.0%. We also factored in acquisitions of S$500m-800m p.a. over the next few years. CCT is currently trading at a yield of 2.91%.