Brokers’ Take: Analysts lower target prices on CICT, but remain positive on prospects

ANALYSTS from UOB Kay Hian (UOBKH), DBS, and OCBC have lowered their target prices on CapitaLand Integrated Commercial Trust (CICT), but remain upbeat on the counter's prospects amid a rising interest rate environment.

Both DBS and OCBC maintained their "buy" ratings on the counter, while UOBKH upgraded its call to "buy".

CICT had on Friday (Oct 21) reported higher revenue and net income in a business update for Q3 FY2022.

In its report on Tuesday (Oct 25), DBS lowered its target price for the counter from S$2.17 to S$2.14 to factor in rising interest costs. Its new target price implies a price-to-net asset value ratio (P/NAV) of 1.1 times, which is close to its historical mean.

Both UOBKH and OCBC expressed some concern about CICT's increased aggregate leverage - from 40.6 per cent to 41.2 per cent - as well as its higher cost of debt, which rose to 2.5 per cent. In mitigation, however, they noted 80 per cent of CICT's borrowings are hedged to fixed interest rates.

OCBC raised its cost of equity assumption for the counter from 6.4 per cent to 6.6 per cent while lowering its terminal growth projection from 1.5 per cent to 1.25 per cent, on expectations of a mild recession in the United States in 2023.

In light of these adjusted projections, the research house reduced its fair value for CICT from S$2.42 to S$2.15.

UOBKH analyst Jonathan Koh, meanwhile, said in a Wednesday report that CICT's increases in leverage and cost of debt were "slight", and the Reit's (real estate investment trust) balance sheet was resilient enough to weather external uncertainties.

Noting that new office tenants will only contribute to CICT's cash flow starting January 2023, UOBKH reduced its distribution-per-unit (DPU) forecast for the counter by 3.5 per cent in 2022, and by 0.6 per cent in 2023.

The brokerage thus set a lower target price for the counter at S$2.14, down from S$2.17, giving it an "attractive" distribution yield of 6.7 per cent for the Reit.

Despite the cutting of target prices across the board, the research houses remained bullish on CICT's prospects. They see the Reit's retail and office assets benefiting from higher rental reversion and occupancy rates, due to the post-pandemic reopening and the relaxation of public health measures.

DBS said CICT's DPU could grow at a compounded annual rate of 6 per cent over the next two years, which would represent one of the stronger growth rates among its peers.

Shares of CICT closed 4.4 per cent or S$0.08 higher on Wednesday at S$1.90.

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