Results

• FY14 gross revenue of RM70.25m (+1.9% yoy) was translated into normalised net profit of RM34.15m (-1.1% yoy), accounting for 98.1% and 96.8% of HLIB and consensus FY forecasts, respectively.

Deviations

• Broadly in-line

Dividends

• As expected, second interim dividend of 4.28 sen was declared during fourth quarter with ex-date on 4 th Feb 2015.

• YTD dividend amounted to 8.38 sen per unit (FY13: 8.38 sen) accounting for 98.9% of our full year DPU assumption.

Highlights

• Full year gross revenue inched up by 1.9% yoy on the back of higher rental rates and recoveries. However, as a result of higher increase in property operating expenses (+7.5% yoy), net property income was only up by a paltry 0.3% yoy.

• We are positive on the management’s ability to retain 97% of tenancy leases due in 2014 and we believe this was a result of built-to-suit strategy being adopted by QCT. As such, we opine that a huge chunk of 26% of total NLA due for expiry in 2015 will face no major issue for renewal this year.

• We are also pleasantly positive as we gathered that QCT’s weighted average lease expiry (WALE) stood at around 5.7 years, well above 3.53 years of WALE for M-REITs under our coverage.

• In the light of sluggish outlook for office segment in Klang Valley, QCT managed to maintain occupancy rates at 91% throughout 2014; compared to average occupancy for office market in Klang Valley of 83%.

• We believe that Platinum Sentral is on track for completion in 1Q2015, upon which will bring the total asset value to RM1.58bn from RM837.70m currently.

• We are of the view that in the event of interest rate hike, QCT will be able to shield itself from high finance cost better than its peers, as 100% of its borrowings is on fixed rate since 4Q2011.

Risks

• Management continuity following the entry of MRCB.
• Slow rental reversion rate.
• Failure on execution of Platinum Sentral acquisition plan.

Forecasts

• Unchanged.

Rating

BUY , TP: RM1.34

Positives

• (1) higher possibility of asset injections fromMRCB 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 – 8.0% DY (FY15E).

Negatives

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

Valuation

• Maintain BUY with a higher TP of RM1.34 (previously RM1.30) as we roll forward our valuation to FY15.
• Targeted yield remains unchanged at 7.5 % based on historical average yield spread of QCT and 7-year MGS.

Source: Hong Leong Investment Bank Research - 20 Jan 2015