Hold (from Buy)
Share price: MYR1.22
Target price: MYR1.27 (unchanged)
Downgrade to HOLD. QCT’s 1H13 core net profit of MYR17m was in line with expectations. Despite rising vacancy rates and flat rental growth in the over-supplied office market, QCT has still managed to retain the majority of its tenant base, showing its capability and good relations with tenants. We maintain our earnings forecasts and MYR1.27 DCF-based TP. The unit price is approaching our TP since our last upgrade to BUY in May 2013 and now offers an overall prospective return of c.10.7%.
A weaker 2Q, as we expected. 2Q13 core net profit of MYR8.9m (- 2.8% YoY, +9.8% QoQ) took 1H13 earnings to MYR17m (-1.3% YoY), making up 46-47% of our and consensus full-year estimates. Earnings usually pick up in 2H on lower maintenance and administrative expenses. The YoY decline in net earnings was due to a higher vacancy rate (5-7%) and administrative costs, offsetting positive rental reversions recorded at some properties. Sequentially, there was an improvement of 9.8% in net profit thanks to higher revenue and lower finance costs. The trust has declared a 4.1sen DPU for 1H13.
Zero refinancing and interest risk. On 18 July 2013 QCT signed a MYR150m term loan facility agreement for the refinancing of its MYR117m debts expiring in Sep 2013. It targets to drawdown the facility by Sep 2013. Meanwhile, the trust continues to adopt a conservative capital management policy – 100% of debt is in fixed-rate loans to ensure income stability.
Strong tenant management ensures income stability. Most tenants (whose leases are due for renewal in 3Q-4Q13, including Technip) are likely to stay on given QCT’s active management and strong relations with them. Thus far, 21% of QCT’s expiring NLA in 2013 has been renewed while discussions are ongoing for the remaining leases. For now QCT remains prudent, only acquiring new assets with long leases backed by rental guarantees. As at June 2013, its gearing ratio was unchanged at 0.36x.
Publish date: 02/08/13