QCT’s  full-year results came in within expectations. Maintain NEUTRAL and  DDM-based  MYR1.25  TP  (2.5%  upside).  The  Platinum  Sentralacquisition  has  been  further  delayed  until  end-March  or  early  April, although  both  QCT  and  MRCB  remain  committed  to  sealing  the  deal. We continue to expect flattish organic growth going forward due to the soft office rental market.

In  line.  Quill  Capita  Trust’s  (QCT)  MYR34.2m  FY14  core  net  profit  (-1.1% YoY)  was in line with our/consensus full-year forecasts.  Full-year earnings growth remained  flattish due to the persistent soft office rental market,  while  higher  repair  and  maintenance  costs  incurred  squeezed FY14  net  property  income margins  slightly to  75.9% (FY13:  77.2%).  A 4.28 sen dividend was declared for 2H14, bringing total DPU to 8.38 sen, similar to last year’s distribution. Renewals remained decent,  as  almost all  tenancies  due  to  expire  in  FY14  were  renewed.  QCT  has  also renewed  2%  of  the  26%  due  to  expire  in  2015.  That  said,  we  expect rental reversions to remain flattish, given the persistent challenging office market.  Gearing  ratio  remained  stable  at  35.1%.  QCT  also  recorded  a MYR6.1m revaluation gain on its assets.

Further  delays  in  Platinum  Sentral’s  acquisition.  The  acquisition  of Platinum  Sentral  from  Malaysian  Resources  Corp  (MRCB)  (MRC  MK, NEUTRAL, TP: MYR1.40) is now targeted to only be  completed in endMarch or early April. This is because there have been some delays in the fulfilment  of  the  condition  precedents.  That  said,  management  is confident that this is unlikely to be a deal  breaker and has reiterated thatboth QCT and MRCB remain committed to sealing the deal.

Forecasts.  We  revise  our  FY15-16  numbers  by  less  than  5%  after factoring in the delay in the completion of the acquisition as well as after updating our FY14 numbers. We also introduce our FY17 forecasts.

Maintain NEUTRAL.  We reiterate that QCT may continue to 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 a change in management. Hence, we maintain our NEUTRAL call and DDM-based TP of MYR1.25 for now.

Source: RHB