CCT – CIMB

Visit Malaysia year

• Tapping rising rents in Kuala Lumpur. Last December, CCT invested in 30% of Quill Capita Trust (QCT), a Reit listed on Bursa Malaysia. QCT has an initial portfolio of four commercial assets in Kuala Lumpur, worth RM280m. Rents for commercial space in Kuala Lumpur are set to rise further, given the demandsupply imbalance. We believe CCT’s increasing exposure to this market is timely.

• Pipeline assured. MCDF, a development fund set up by parent CapitaLand and Maybank, is expected to give QCT access to completed properties for future acquisitions. As the number of properties that CapitaLand can itself inject into CCT dwindles, yield-accretive investment in other fast-growing commercial Reits such as QCT can provide CCT with an alternative growth avenue.

• Contributions still small at this stage. While we consider the investment in QCT a positive move, we estimate that QCT can only add 1-2% to CCT’s distributable profit over the next 2-3 years. QCT’s portfolio will probably make up just 3% of CCT’s overall assets over the same period.

• Yield is still demanding. Our FY07-08 DPU forecasts have been raised by 3-4% to reflect QCT’s contribution. Accordingly, our DDM-derived target price has been raised from S$2.30 to S$2.55, still based on a cost of equity of 5%. CCT’s forward yields of 3-4% are below the average 4.5-5% that S-Reits are trading at. Our target price of S$2.55 translates into a yield of 3.2%, which is in line with CCT’s current valuation. Maintain Neutral.