Results

• Within expectations. 3QFY17 normalised net profit of RM21.4m (qoq: -3.0%; yoy: +40.4%) translated into 9MFY17 normalized net profit of RM66.6m (+45.3% yoy). The results were within ours and consensus expectations, accounting for 76.0% of our and 73.4% of consensus estimates.

Deviations

• None.

Dividends

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

Highlights

• YoY: Normalized net profit increased 40.4% on the back of additional revenue from the newly acquired Menara Shell and higher rental income from QB2, QB3, QB5 and Wisma Technip.

• QoQ: Normalized net profit decreased 3% due to higher property operating expenses.

• YTD: Normalized net profit increased 45.3% due to additional revenue from the newly acquired Menara Shell (full year impact as it was acquired in Dec 2016) and rental rate increases from QB2, QB3, QB5 and Wisma Technip.

• Overall occupancy rate remained healthy at 96.6%. Meanwhile, c.57% of total lease expiry in FY17 (14% of total NLA) has been renewed.

• Average debt to maturity has improved to 3.05 years (from 2.70) while average cost of debt (4.4% p.a.) was maintained. The gearing level of MQREIT remained unchanged at 37% which is still below the limit of 50%.

• Outlook : Despite the lacklustre overall office market, MQREIT’s office space will remain stable and well-guarded from its long weighted average term to expiry (5.5 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

• Maintained.

Rating

BUY ↔ , TP: RM1.48 ↔

• 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 allowed MQREIT to enjoy greater operating efficiency arising from economies of scale.

Valuation

• Maintain BUY with unchanged TP of RM1.48 with unchanged targeted yield of 6.2%.

Source: Hong Leong Investment Bank Research - 20 Nov 2017