Results

• Reported 1QFY17 gross revenue of RM45.6m (+33.7% qoq, +39.5% yoy) which translated to normalised net profit of RM23.2m (+73.2% qoq, +52.0% yoy), accounting for 26.9% and 25.9% of HLIB and consensus forecasts, respectively.

Deviations

• None.

Dividends

• No dividend was declared as the dividend is paid on a half yearly basis.

Highlights

• YoY: Higher profit (+52%) recorded on the back of additional revenue from the newly acquired Menara Shell and higher rental income due to step up rent adjustments from QB2, QB3 and Wisma Technip.

• QoQ: Profit grew by 73.2% mainly due to additional income from Menara Shell and higher rental income from QB2 and Wisma Technip.

• Overall occupancy rate slightly reduced to 97% (from 98%) but still remained healthy. Meanwhile, 2% of total lease expiry in FY17 (14% of total NLA) has been renewed.

• MQREIT has completed the refinancing of RM190m borrowings in March 2017. As a result, the average debt to maturity has improved to 2.91 years (from 2.69 years) while average cost of debt (4.4% p.a.) is maintained. The gearing level of MQREIT remained unchanged at 37% which is still below the limit of 50%.

• With the acquisition of Menara Shell, asset size has ballooned to RM2.27bn from RM837m in 2014. The increase in asset size allowed management to enjoy greater operating efficiency arising from economies of scale.

• Outlook : Despite the lacklustre overall office market, MQREIT’s performance is expected to remain stable due to its healthy occupancy rate and long WALE (5.6 years) with well-spread NLA expiry (26% and 13% expiring in FY18 and FY19, respectively).

Risks

• High gearing compare to industry average.

• Slower rental reversion rate for office market.

Forecasts

• Unchanged.

Rating

• BUY ↔ , TP: RM1.45

• We continue to like MQREIT given its high dividend yield (highest among REITs in our universe), stable assets in prime location of KL Sentral with high occupancy rate and healthy WALE profile. The larger portfolio size allows MQREIT to enjoy greater operating efficiency arising from economies of scale.

Valuation

• Maintain BUY with higher TP of RM1.45 as we roll forward our valuation horizon from FY17 to FY18 with unchanged targeted yield of 6.2%.

Source: Hong Leong Investment Bank Research - 5 May 2017