Analysts raise target price on CICT on recovery expectations

Singapore

FOUR brokerages have raised their target price on CapitaLand Commercial Integrated Trust (CICT), as most are expecting the recently-merged entity's earnings to recover in the following financial year.

This comes after the manager on Thursday posted Q4 and FY2020 results that included full-year negative rent reversions of 6.6 per cent, which its chief executive said was hopefully the bottom for CICT.

Both DBS and Maybank Kim Eng maintained their "buy" calls on the trust with the view that FY2021 will be a year of recovery for CICT, underpinned by improvements in the retail sector. While DBS raised its target price to S$2.50 from S$2.40 previously, Maybank has upped its target price to S$2.55 from S$2.50.

In a Thursday report, Maybank analyst Chua Su Tye said that he expects the negative reversions to moderate as social-distancing measures ease and retail recovery gains traction. "The rent-relief cycle seen in Q3 2020 has peaked, with tenant expansion in 2021-22," he said.

He also foresees the portfolio's net property income in FY2021 to be supported by asset enhancement initiatives, as well as improving earnings from CapitaSpring from 2022. In his view, the asset's pre-commitment should climb to 60 per cent upon completion since its pre-commitment recently rose to 38 per cent from 34.9 per cent in the previous quarter.

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Analysts from DBS also said that CICT's newly integrated commercial assets will drive synergistic value from its existing portfolio. They value CICT at close to one time the price-to-net asset value (P/NAV) with forward yields of 5 per cent - which they highlight is the highest among its large-cap peers that are trading an estimated 4.5 per cent.

"In addition, (CICT's) size offers a bigger platform and opportunity to grow with acquisitions of integrated development led by the rising global trend of live-work-play," said DBS analysts in a report on Friday.

Likewise, CGS-CIMB reiterated its "add" call on the trust, raising its target price to S$2.56 from S$2.13 previously.

"CICT has 16.3 per cent of portfolio income derived from retail leases expiring in FY21F. We estimate low single-digit negative rental reversion to continue in FY21F," said its analysts in an update on Thursday.

Following the merger, CICT's expanded balance sheet capacity would enable the group to explore value-creation strategies including asset enhancements, acquisitions and portfolio reconstitution while maintaining a stable portfolio performance, they added.

While UOB Kay Hian analyst Jonathan Koh's "hold" call on the trust remains unchanged, he has raised his target price to S$2.32 from the previous S$2.25 on expectations of a recovery in the office sector ahead of CapitaSpring's completion.

He nonetheless maintains a conservative outlook on the trust as he believes downtown malls will continue to be a drag on its financial performance in 2021.

"We estimate that negative rental reversion was maintained at about 13 per cent in Q4 2020," said the analyst in a report on Friday. "Rental reversion was

-6.6 per cent on a full-year basis. Larger double-digit declines were seen at downtown properties, such as RCS, The Atrium and Clarke Quay. Occupancy was flat quarter on quarter at 98 per cent in Q4 2020. We estimate retention rate at about 79 per cent in H2 2020 (versus 90 per cent in H1 2020)."

Mr Koh cautioned that shareholders may also face a divestment risk on existing properties as CICT plans to lower aggregate average to below 40 per cent. "Future redevelopment projects could also cause disruptions," he said.

Shares of CICT closed down S$0.02, or 0.87 per cent, at S$2.28 on Friday.