News

• QCT has proposed a disposal of Quill Building 10 – Section 13 (QB10) for a total lump sum cash consideration of RM27.3m. QB10 comprises a 5-storey office building with 1 level of basement car park located in Petaling Jaya.

• The manager opines that the disposal is timely as there is limited upside for future rental growth and also favourable market prices for asset sale.

• The deal is expected to be completed in 1HFY15. Proceeds from disposal will be used to finance asset enhancement initiatives, investment into other yield accretive properties and working capital purpose.

Highlights

• We are not surprised by the news as we gathered that ever since it was vacant in 2012, QCT has received more interest for QB-10 to be sold, rather than leased.

• We understand that the property was previously occupied by HSBC for credit card back-room operation. However there was re-organization of the business operation which has resulted in the downsizing of the operation and the credit card back-room operation was moved back to the KL office. As such HSBC decided not to renew the tenancy agreement upon its expiry.

• We do not see any material impact on QCT’s earnings and our DPU assumptions given that QB-10 did not generate rental income since it remains vacant for approximately three years.

Risks

• Execution risk.
• 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 – 7.6% DY (FY16E).

Negatives

• (1) Small asset base; and (2) Lack of retailassets.

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 in view of the game-changing entry of MRCB as the major unitholder.

Source: Hong Leong Investment Bank Research - 26 Feb 2015