Highlights

• Our recent visit to Platinum Sentral and meeting with QCT management has reaffirmed our positive stance on the trust.

• QCT was originally listed with only four properties and total asset value of RM280m. Upon listing, QCT was granted with 5 years first right of refusal by Quill Group and CapitaLand which resulted in six properties that had been injected progressively. As at 31 December 2014, the total asset value stood at RM837.7m.

• The quality assets held by QCT are occupied by quality tenants; most of them are subsidiaries of MNCs, singletenanted building and based on built-to-suit basis. This helps QCT to shield itself from oversupply of office space in Klang Valley. As at 31 December 2014, QCT’s occupancy rate was 91% and WALE was 5.7 year, well above the average of 3.5 year for M-REITs under our universe.

• We view QCT’s acquisition of Platinum Sentral as a strategic move given its location in KL Sentral, an exclusive urban centre built around Malaysia’s largest transit hub, offering global connectivity, excellent opportunities, business convenient and an international lifestyle.

• Platinum Sentral is poised to benefit from KL Sentral’s worldclass city. As Malaysia’s first green commercial building to be awarded by the highest rating Singapore’s BCA, Platinum Sentral includes contemporary office building, high-end retail, hospitality zone and green space.

• We believe the acquisition of Platinum Sentral will be a game changer for QCT and M-REITs due to: (1) It will results QCT’s total asset value to jump 87% to RM1.57bn; (2) MRCB, which will be the single largest unitholder, already announced its intention to inject at least RM1bn worth of asset into QCT annually; and (3) EPF as a single largest shareholder of MRCB will also contribute to inject high quality assets into QCT.

Risks

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

Forecasts

• We tweaked our earnings as we factor in cost related to acquisitions. As a result, we cut our DPU assumptions for FY15 and FY16 to 8.6 sen and 9.2 sen respectively.

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 – 7.5% DY (FY16E).

Negatives

• : (1) Small asset base; (2) Lack of retail assets.

Valuation

• Maintain BUY recommendation for the stock with unchanged TP of RM1.34.
• Our valuation was pegged to targeted yield of 6.9% FY16 DPU based on 2SD below 7-year historical average yield spread.
• This is justified as the entry of MRCB will be a game changer whereby there will be higher potential excitement from asset injections and thereby warrant a narrower yield gap vis-à-vis other retail REITs.

Source: Hong Leong Investment Bank Research - 12 Feb 2015