Highlights 

Recently,  we  met  with  Ms.  Yong  Su-Lin,  interim  chief executive  officer  and  Ms.  Joyce  Loh,  senior  manager  for investment and investor relation to get an update on QCT’s acquisition of Platinum Sentral.

Previously,  we  expected  the  deal  to  be  completed  in  3Q14 as per  earlier  guidance. However,  we understand that QCT had to seek certain exemptions from Securities Commission (SC)  prior  to  submitting  its  full  application  for  the  proposed acquisition.  This  has  inevitably  caused  the  delay  in  the submission  process.   QCT had submitted the  full application for  the  proposed  acquisition  to  SC  on  8  July  2014  and  still pending  approval.  We  expect  the  deal  to  be  completed  in 4Q14.

No  indication  yet  about  the composition of the new  Board of Directors  of  the  management  company  of  QCT.  It  is anticipated that MRCB would  have board representation that would  corres pond  with  its  41%  equity  shareholder  in  the management  company  post  completion  of  the  acquisition exercise.  We  expect  to  have  a  clearer  picture  of  the  future investment strategies of the management company  and  how it   intends  to  grow  the  REIT  once  the  new  Board  is appointed.   

We  are  still  positive  about  QCT’s  potential  acquisition opportunities  through  the  Right  of  First  Refusal  to  be granted  by  the  new  shareholder  of  the  management company, namely MRCB.  To recap, MRCB has indicated its intention  to  inject  at  least  RM1bn  assets  into  QCT  every year. In the pipeline, MRCB has assets worth some RM20bn to  be  injected  into  the  REIT  in  the  next  few  years.  We outlined in #Figure 1 the list  of MRCB properties that has the potential  being evaluated for  injection  into QCT in  near  term and  #Figure  2  properties  held  by  MRCB  for  its  future development.

Despite the oversupply office market in Klang Valley , QCT’s average portfolio occupancy rate  stands  at 91%, well above the  current  average  occupancy  rate  for  offic e  market  in Kuala Lumpur  which is at 81%.

Risks

• Management  continuity  following  the  entry  of  MRCB ;  slow rental reversion  rate; failure  on execution of acquisition plan.

Forecasts

• Unchanged.

Rating

BUY

• Positives:  (1)  higher  possibility  of  asset  injections  from MRCB and EPF, following the injection  of Platinum Sentral, resulting  in  MRCB  taking  control  of  QCM  and  major unitholder of QCT.  (2)  Undemanding  valuations  –  8.3%  DY (FY15E).
• Negatives:  Small asset base; illiquid; lack of retail assets.

Valuation

• After conducting housekeeping for our DPU assumption, our TP  is  rev ised  to  RM1.30  (previously  RM1.36 )  bas ed  on 7.5%  target  yield.  Maintain  BUY  rec ommendation  on  the stock.

Source: Hong Leong Investment Bank Research - 16 Oct 2014