Results

• 9MFY15 gross revenue of RM82.6m (+58.6% yoy) was translated into normalised net profit of RM37.05m (+44.4% yoy), accounting for 67.9% and 72.54% of HLIB and consensus FY forecasts, respectively.

Deviations

• Completion of Platinum Sentral acquisition was delayed by 3m to end of March vs our earlier assumption of end Dec.

Dividends

• No dividend announcement for current quarter as it is usually done on half yearly basis. YTD dividend of 4.10 sen accounted for 49.9% of our full year DPU assumptions.

Highlights

• Similar to previous quarter, contribution from PS, Plaza Mont’ Kiara and better rental rate have improved the net profit to RM15.73m (+15% qoq, +76.1 yoy). Striping off the one-off divestment gain of QB10, the normalised net profit stood at RM15.14m (+11% qoq, +69.5 yoy).

• A record high 80.1% NPI margin was achieved compared to 75.6% in the previous quarter (Figure #5), due to lessor repair cost as well as one-off reversal of agency fee.

• 93% of the leases due from 1Q to 3Q 2015 has been secured and 73% of the remaining non-renewed space has been taken up by new lessee. This translated to only <0.27% of the total NLA (<4590 sqft) not being renewed.

• We reiterate our positive view on MQREIT. Further improvement in occupancy rate was achieved in this quarter (97%; 2Q:93%). This is expected to enhance the EPU in the final quarter.

Risks

• Management continuity following the entry of MRCB.
• Slow rental reversion rate.

Forecasts

• We fine-tuned our forecast by lowering both our top line and operating expenses, which resulted in slightly higher DPU for FY16.

Rating

• BUY , TP: RM1.29

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 – 7.1% DY (FY15E).

Negatives

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

Valuation

• Maintain BUY recommendation with unchanged TP of RM1.29.
• Our valuation was pegged to slightly higher targeted yield of 6.94% (VS 6.9%) based on 2SD below 1 year historical average yield spread of MRCB-Quill REIT and 7-year government bond in view of high potential for yield accretive injection(s).

Source: Hong Leong Investment Bank Research - 6 Nov 2015