CapitaLand: Too early to bottom fish

Summary: CapitaLand (CapLand) announced yesterday that it has placed out 100m units of Ascott Residence Trust (ART) to institutional investors at a placement price of S$1.90 per unit, reducing CapLand?s stake in ART from 53.8% to 37.3%. As a result of this divestment, CapLand will book in a gain of S$30.3m. However, this gain will be offset by lower earnings from ART due to a smaller stake in ART. We estimate net full year effect to be +S$25m to CapLand. We have adjusted our FY07F earnings to S$416m. In terms of recommendation, CapLand?s sum-of-parts valuation is highly dependent on its listed associates and subsidiary. These associates, even after the recent sell-down, continue to trade at high price-to-book ratios. If the market volatility continues, we see further downside risks to the listed associates? valuations and hence to CapLand?s valuation. We advice caution and believe it is too early for bottom fishing. We maintain our HOLD rating and fair value of S$6.49. (Winston Liew)