CRCT

CRCT: Daiwa notes how CRCT had had a 24.1% price run YTD and feels valuations not justified. The house attributes it to 1) low base at start of year, coupled by equity fundraising exercise), 2) strong operating results, 3) pricing in positive M&A activity into the stock following privatization of CMA by CaptitaLand. With CapitaLand coming under increasing pressure to improve ROE and recycle capital, some investors might assume that it would spur divestment to CRCT. On the third point, Daiwa is not so sanguine because market value of any well managed mall in China is much higher than what CRCT can pay. CRCT is constrained by DPU accretion, while CapitaLand looks at extracting full value of assets. CMA’s China malls are calued at net cap rates of 5.8-7.0%, but Daiwa feels any real serious buyer would be paying much more than that. Hence the house downgrades to Underperform from Hold with a lower TP of $1.45 (from $1.49)