AmWatch - Quill Capita Trust : Compelling acquisitive growth story BUY, 23 Apr 2015

STOCK FOCUS OF THE DAY

Quill Capita Trust : Compelling acquisitive growth story   BUY

We initiate coverage on Quill Capita Trust (QCT) with a BUY rating and a fair value of RM1.35/unit, based on a 10% discount to its DCF value of RM1.50/unit. Taken together with our DPU estimate of 8.6sen for FY15F, our fair value implies a total return of 18% at the current price.

QCT, 30%-owned by MRCB, is undergoing transformational growth as it is likely to house MRCB’s prime commercial assets in KL Sentral. QCT will soon be renamed to MRCB-Quill REIT. QCT has been given the right of first refusal to purchase properties owned by MRCB and Quill Group. The collective value of RM1.8bil (for five assets) would see its total asset value increase by 113% to RM3.4bil. Similarly, QCT’s asset size has almost doubled to RM1.6bil (+91%) following the acquisition of Platinum Sentral from MRCB in March.  We estimate FY15F DPU at 8.6sen (+2% YoY), which reflects 9-month contribution from Platinum Sentral (35% of rental income), and a DPU of 8.8sen for FY16F.

We project rental reversion for FY15F at +3% (excluding contribution from Platinum Sentral), boosted by            26%-occupied floor space that are up for renewal at QB1 (Quill Building 1), QB3, QB4, and some retail space in Plaza Mont Kiara; coupled with agreed step-up rentals (1%-2% p.a.) at other properties. Further upside in DPU will come from the ramp-up in occupancy rate. While QCT’s overall portfolio occupancy is strong at 95%, QCT is on the constant lookout to reduce vacancy.

One of its strategy is to get anchor tenants to take-up additional NLA during lease renewals. We understand that QB3’s major tenant, BMW, intends to take up additional NLA this year, which will increase QB3’s occupancy rate to about 80% from 73% currently. QCT has an attractive yield of 7.1% for FY15F vis-à-vis its sector peers’ 6% with a yield spread of 320bps over the 10-year Malaysian Government Securities yield of 3.9%.

Others :

IJM Corporation : Starts ball rolling for The Light Phase 2                BUY

Econpile Holdings : Secures RM29mil Mont Kiara job        BUY

MRCB : Disposes Nu Sentral Mall stake BUY

Bursa Malaysia : 1QFY15: Boost from the derivatives segment    HOLD

Banking Sector : Prudential but positive measures for R &R loans              NEUTRAL

Automobile Sector : Pre-GST bonanza    Neutral

EconWatch : Subdued demand conditions and moderate cost pressure keep inflation at bay in 2015

QUICK TAKES

Sunway : Ex-date for SCG shares distribution on 6 May 2015        BUY

Genting Singapore : Implications of MBS’ 1QFY15 results               HOLD

CIMB Holdings : Higher impaired loans for CIMB Niaga in 1Q         HOLD

NEWS HIGHLIGHTS

Property Sector : IWCity acquires land for RM156mil in Johor