MRCB-QUILL REIT
Target price: RM1.38
MRCB-Quill REIT (MQREIT) reported revenue of RM44.7mil and normalised net profit of RM21.5mil in the fourth quarter of financial year 2017 (Q4’17).
This brings 2017 revenue to RM180.1mil and normalised net profit to RM88.1mil.
Distributable income for 2017 accounted for 98.8% and 102.8% of UOB Kay Hian’s and consensus fullyear forecasts, respectively.
MQREIT declared a second interim dividend of 4.16 sen in Q4’17, bringing full-year dividend to 8.39 sen, or a 6.9% dividend yield.
For 2017, normalised net profit grew 49.2% year-on-year (y-o-y), largely due to contributions from newly-acquired Menara Shell.
The acquisition of Menara Shell was completed on December 22, 2016 and increased MQREIT’s asset portfolio size by 40% from RM1.6bil to RM2.3bil.
The improved performance in 2017 was also attributed to higher rental rates at Quill Building 3, Wisma Technip, and Quill Building 2.
Despite the challenging office rental outlook, MQREIT maintained its occupancy rate at 97%, similar to 2016’s.
“We like MQREIT’s portfolio, which consists mostly purpose-built office buildings with tenants in long-term contracts.
“MQREIT’s weighted average lease expiry (Wale) is still the highest among peers under our coverage, at 5.5 years, with peers at 3.6 years,” said UOB Kay Hian.
Post-acquisition of Menara Shell, MQREIT’s gearing fell to 37%, as compared to 43% during the acquisition, as a result of an enlarged asset base.
The research house opines that MQREIT’s current gearing ratio is healthy and on a par with peers’, allowing it to tap into the debt and equity markets for future acquisitions.
UOB Kay Hian believes MQREIT’s next acquisition will be Menara Celcom in PJ Sentral, which has a gross development value of over RM500mil.
Telecommunications company Celcom has signed a 21-year lease contract with MRCB.
“Based on our back-of-the-envelope calculations, Menara Celcom could grow MQREIT’s total asset value by 24% and raise core earnings by 23%, assuming 500,000 sq ft of net lettable area (NLA) and a conservative rental rate of RM5.50 per sq ft per month.
“We think contribution from Menara Celcom would come in earliest in 2019, judging from previous acquisition exercises which took slightly more than a year for completion,” said UOB Kay Hian. put volumes of more than 3,000 units from FY19.
There had been concerns that the revamp of the excise duty structure would significantly affect Bermaz Auto’s (Bermaz) sales in the Philippines.
Still, the recent ratification of the Tax Reform for Acceleration and Inclusion (TRAIN) bill revealed that average excise duties on autos will only increase marginally.
The removal of this overhang is a positive for the outlook for auto sales in Philippines.
“We expect Bermaz to introduce the all-new seven-seater CX-8 sport utility vehicle (SUV) in mid-2018 – beginning with complete built-up (CBU) units, until CKD production commences in December.
“Similar to the CX-5, the locally produced CX-8 will also be exported to regional markets,” said RHB Research.
In Philippines, the SUV segment comprises nearly 15% of a market that is dominated by Toyota, Ford, and Mitsubishi.
Management’s modest 5% target segment market share would translate into additional sales of 3,000 units pa – ie boosting its Philippines’ Mazda sales significantly going forward.
Key risks include a reversal in the Ringgit, delay in new model launches and weaker consumer sentiment.
“After updating our model for our latest JPY assumptions, our FY18 earnings estimates are lowered by 20.9% after imputing weaker margins for certain older models and new model launch costs.
“FY19-20 net profit forecasts were raised by 2.9%-11.3%.
“We expect the market to re-rate the stock higher as the Philippines risk has abated, with new models broadening its product base,” said RHB Research.
Bermaz offers both earnings growth and an attractive yield.
The outlook is looking increasingly positive for Bermaz.
The slew of new products, on top of a more favourable exchange rate environment, could drive earnings to new highs.