QCT’s  9M14 results  were  in line with expectations. Maintain NEUTRAL and DDM-derived TP of MYR1.25  (5% upside).  Although the acquisition of  Platinum  Sentral  has  hit  a  slight  bump  due  to  delays  in  obtaining some approvals, we believe the exercise will still likely be completed by 1Q15. Organic growth continues to be sluggish, in line with the industry trend of a persistently  soft office rental market.

In line.  Quill Capita Trust’s (QCT) 3Q14 net profit  of MYR8.9m  was  in line  at  72%/71%  of  our/consensus  full-year  forecasts.  9M  earnings growth  continued  to  remain  flattish  due  to  the  persistently  soft  office rental market, while higher repair and maintenance costs squeezed net property income margins slightly to 76.7%  (9M13: 77.7%). No dividends were  announced  in  3Q14,  given  its  semi-annual  distribution  policy.Renewals remained  decent, as  13% of the 31%  total NLA due for expiry this year has been renewed. The remainder will likely be renewed in 4Q.However, we note that more than 80% of its NLA is single-tenanted, thus making  QCT  somewhat  vulnerable  to  future  vacancy  risks.  Its  gearing ratio remained at 36%.

Slight delay in Platinum Sentral’s (PS) acquisition. The acquisition of PS  from  Malaysian  Resources  Corp  (MRCB)  (MRC  MK,  BUY,  TP: MYR2.05), which was initially targeted to be completed in  3Q14, is now likely to be delayed into early 1Q15. This is mainly due to some delays in obtaining approvals from the Securities Commission.  Nonetheless, both QCT and MRCB’s managements still expect the deal to go  through,  with MRCB likely to emerge as QCT’s largest unitholder post-acquisition.

Forecasts. We revise our FY14 earnings per unit (EPU) forecast by less than  5%,  as  we  now  expect  the  earnings  contribution  from  PS  to  only start  in  1Q15. We make no changes to our FY15 numbers for now, and introduce our FY16 numbers.

Maintain NEUTRAL.  We reiterate  that  QCT may face  some underlying risks over the short term. These include: i) the office space oversupply situation,  ii)  high  post-acquisition  gearing,  and  iii)  uncertainties  arising from changes  in management.  Hence,  we  maintain  our  NEUTRAL  call and DDM-based TP of MYR1.25 for now.

Source: RHB