Results

• 9MFY14 normalised net profit of RM25.66m (- 1.07% yoy) came in within our expectation but shy of consensus, accounting for 73.7% and 70.7% of HLIB and consensus full year estimates, respectively.

Deviations

• Within expectations.

Dividends

• None (3Q13: None).
• Maintaining target payout ratio of at least 90% distribution semi-annually.

Highlights

3QFY14 normalised net profit increased by +0.17% yoy on the back of increase in rental rates for some properties and also higher recoveries (i.e. utilit ies charged to tenants after normal business hours).

Property operating expenses for the cumulative quarters up by +5.69% yoy mainly due to higher repair and maintenance cost. We understand that the increment in repair and maintenance cost was due to periodic repairs arising from wear and tear.

Finance cost for the cumulative quarters increased by +2.61% yoy mainly attributed to drawdown of RM15m commercial papers and also charging of related transaction cost to the profit and loss during the quarter.

We were taken aback that the proposed acquisition of Platinum Sentral is expected to be completed by early 2015, instead of 4QFY14 as previously guided.

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) Resilient earnings growth with undemanding valuations – 8.2% DY (FY15E).

Negatives

• (1) Small asset base; (2) illiquid; (3) lack of retail assets.

Valuation

• We maintain TP of RM1.30 and BUY recommendation on the stock.
• Targeted yield remains unc hanged at 7.5% bas ed on historical average yield spread of QCT and 7-year MGS.

Source: Hong Leong Investment Bank Research - 27 Nov 2014