Brokers’ take: RHB upgrades CICT to ‘buy’ on recovery prospects

Ry-Anne Lim
Published Tue, Oct 25, 2022 · 12:16 PM

CAPITALAND Integrated Commercial Trust (CICT) is likely set for a recovery in 2023, with additional cash flow from committed leases and despite a plunge in share prices in the last month, said RHB. 

In a report on Tuesday (Oct 25), analyst Vijay Natarajan upgraded the real estate investment trust (Reit) to a “buy” call and raised its target price to S$2.30 from S$2. This came after the Reit on Friday posted an increase in quarterly gross revenue and net property income

The new target price implies a potential upside of 15 per cent from its trading price on Friday of S$1.74. Shares of CICT were trading 3.3 per cent or S$0.06 lower at the time.

According to Natarajan, the Reit’s current performance indicates that the benefits from Singapore’s reopening continue to outweigh costs and inflationary pressures for CICT. For instance, its net profit value rose 12.7 per cent quarter on quarter and 8.4 per cent year on year, spurred by higher revenue from the Reit’s office and integrated portfolios as well as acquisition contributions. 

Meanwhile, CICT’s projected distribution per unit between FY2022 and FY2024 was lowered by 3 to 4 per cent, to factor in higher financing costs and to moderate its growth in rental. This is because 12 per cent and 17 per cent of CICT’s debt is due for expiry in FY2023 and FY2024, respectively; and its portfolio asset value is likely to hold firm, the analyst said.

That being said, Natarajan expects CICT’s revenue to be boosted by a further 1 to 2 per cent as it gradually rolls out higher service charges, offsetting rising costs and mitigating inflationary pressures. 

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Natarajan also predicts that four of CICT’s key assets at CapitaSpring, Six Battery Road, Capital Tower and Asia Square Tower 2 will experience a significant increase in cash flow in FY2023, as 15 per cent of its committed occupancy begin to fully contribute in rent and income. 

Therefore, while CICT’s shares are expected to remain volatile in the near term – with prices plunging 16 per cent in the last month, similar to its peers – Natarajan believes its current share price is still a good entry point for the long term. 

“We remain cautiously optimistic on the Reit’s 2023 outlook,” he said. 

As at 11.40 am on Tuesday, shares of CICT were trading 5.2 per cent or S$0.09 up at S$1.83. 

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