Results

• FY15 gross revenue of RM115.2m (+64% yoy) was translated into normalised net profit of RM53.43m (+56.4% yoy), accounting for 99.5% and 101.4% of HLIB and consensus FY forecasts, respectively.

Deviations

• None.

Dividends

• Declared 2HFY15 dividend of 4.37 sen (2014: 4.28 sen) and full year dividend of 8.47 sen accounting for 98.4% of our full year DPU assumptions at a yield of 7.84%, albeit at a lower payout ratio circa 94% vs 96% in FY14.

Highlights

• Encouraging results in FY15 with additional income post Platinum Sentral acquisition, higher rental reversion from other properties, and cost savings from Platinum Sentral.

• Overall occupancy rate improved to 97.5% with another record high of NPI margin at 82.2% as compared to previous high at 80.1% in Q3 (Figure #5), thanks to cost savings measure from Platinum Sentral.

• 94% of the leases due in 2015 (430k sqft.) has been renewed and 70% of the remaining non-renewed space has been taken up by new lessee. This translated to only ~0.48% of the total NLA (~8160 sqft) not being renewed.

• Ongoing acquisition of Menara Shell is expected to complete in Q1FY16. Assuming 9m contribution, it will contribute additional 29% of rental income to our FY16 forecasted rental income.

• Despite challenging outlook for 2016, only 7% of the NLA is due for renewal, hence, active acquisition activities are expected to pursue for non-organic growth to add to its ever growing NAV at RM1.6bn.

• We reiterate our BUY recommendation on MQREIT given the consistent high DPU yield (>7%) and huge assets injection in the pipeline from its sponsor.

Risks

• High gearing compare to industry average.
• Slow rental reversion rate.

Forecasts

• Unchanged.

Rating

BUY , TP: RM1.29

Positives

• (1) high possibility of asset injections from sponsor; (2) Resilient earnings growth with undemanding valuations – 7.8% yield.

Negatives

• (1) High gearing; (2) illiquid; (3) lack of retail assets.

Valuation

• Maintain BUY recommendation with unchanged TP of RM1.29.
• Our valuation was pegged to targeted yield of 6.94% based on 2SD below 1 year historical average yield spread of MRCB-Quill REIT and 10-year government bond in view of high potential for yield accretive injection(s).

Source: Hong Leong Investment Bank Research - 26 Jan 2016