Brokers' take: UOBKH upgrades CICT to 'buy' with higher target price of S$2.42

UOB Kay Hian (UOBKH) has upgraded its call on CapitaLand Integrated Commercial Trust (CICT) to "buy" from "hold" with a higher target price of S$2.42, compared with S$2.32 previously.

The brokerage has raised its distribution per unit (DPU) forecast by 1 per cent for FY2022 to factor in contributions from 21 Collyer Quay from Q4 FY2021.

In a Wednesday report, analyst Jonathan Koh highlighted CICT as a pure play on the expected recovery of the domestic economy.

Noting that its suburban malls are faring better as at Q4 FY2020, he says he is particularly optimistic that the recovery in retail spending will extend from these malls to those downtown, including Bugis Junction and Funan.

While Mr Koh is expecting the Reit's office portfolio to register negative rental reversion, he notes that leasing enquiries have picked up recently while demand is also "trickling back", in his view.

With WeWork planning to go public again, the analyst is also positive on 21 Collyer Quay's prospects of contributing to the Reit's earnings from Q4, given that the co-working space provider plans to launch its largest location at the property in the next 9-12 months.

Further, Mr Koh is expecting CICT to focus on asset enhancement initiatives for its retail malls, a move that could bode well for the Reit's outlook in the medium term.

He thinks Plaza Singapura could be enhanced to "better serve families and kids enjoying attractions in the vicinity". He also highlighted the possibility of Raffles City being shifted to a more upmarket positioning, with a segment of the mall possibly being devoted to a luxury brand.

"The joint venture between CapitaLand (CICT's sponsor) and City Developments to redevelop Liang Court will rejuvenate the surrounding area. CICT could enhance Clarke Quay by changing the trade mix to complement Liang Court," he wrote.

Based on Mr Koh's observations, there appears to be selling pressure on CICT due to concerns that CapitaLand shareholders will dispose of the trust's units they receive.

However, he does not think investors will switch over from the trust to CapitaLand Investment Management (CLIM) over the longer term.

"CLIM is a growth company that focuses on expansion of funds under management. It is uncertain if CLIM would be included in the FTSE EPRA/NAREIT Global Real Estate (Developed) Index. CICT provides higher yield and is more suitable for insurers and income funds."

CICT units closed at S$2.12 on Wednesday, up S$0.02 or 0.95 per cent.