KUALA LUMPUR: Maybank Investment Bank Research said MRCB-Quill Real Estate Investment Trust (MQReit) remained a “buy” although the it had moved towards its target price since its upgraded the counter on Jan 25.
The research house said there was “valuation upside” from the Menara Shell injection. Furthermore, its net dividend yield of 6.1% that was still attractive compared to the sector average of 5.2% also provides the upside potential to the Reit price.
“The acquisition of Menara Shell could be the next re-rating catalyst but the extent of its impact is still subject to the funding structure (equity+debt). Hence, our earnings forecasts and DCF-based target price of RM1.15 are unchanged at this juncture,” Maybank said.
It believed that the expected injection of Menara Shell in early-2017 could significantly lift earnings while MQReit’s long-term earnings outlook was supported by its anchor tenants.
“Based on our latest estimates, Menara Shell could raise FY17/18 net profit by 39% and 38% respectively to RM83.8mil/ RM88.1mil (12-month contribution each) assuming ARR of RM8 per sq ft, 100% occupancy rate, 75% net property margin, and 40%:60% debt to equity funding with interest cost of 4.6%.
“We also derive a FY17 net property yield of 6.5%-above our estimated funding cost of 5.9%. Nonetheless, our forecasts are unchanged pending the confirmation of the funding structure,” Maybank said.
The research house noted that Platinum Sentral, which contributes about 41% of FY16-18 estimated revenue (before including Menara Shell), had remained 100%-occupied as large tenants such as SPAD, SME and Pemandu were on leases of 6-15 years.
“We estimate that gross gearing would remain high at 0.42 times by end-FY16 estimate which could limit future sizeable acquisitions as MQReit could only borrow up to about RM274mil (statutory limit: 0.5 times). Nonetheless, we forecast that the purchase of Menara Shell via debt and new Reit units issuance has marginal impact to gross gearing,” Maybank said.
The research house said there was “valuation upside” from the Menara Shell injection. Furthermore, its net dividend yield of 6.1% that was still attractive compared to the sector average of 5.2% also provides the upside potential to the Reit price.
“The acquisition of Menara Shell could be the next re-rating catalyst but the extent of its impact is still subject to the funding structure (equity+debt). Hence, our earnings forecasts and DCF-based target price of RM1.15 are unchanged at this juncture,” Maybank said.
It believed that the expected injection of Menara Shell in early-2017 could significantly lift earnings while MQReit’s long-term earnings outlook was supported by its anchor tenants.
“Based on our latest estimates, Menara Shell could raise FY17/18 net profit by 39% and 38% respectively to RM83.8mil/ RM88.1mil (12-month contribution each) assuming ARR of RM8 per sq ft, 100% occupancy rate, 75% net property margin, and 40%:60% debt to equity funding with interest cost of 4.6%.
“We also derive a FY17 net property yield of 6.5%-above our estimated funding cost of 5.9%. Nonetheless, our forecasts are unchanged pending the confirmation of the funding structure,” Maybank said.
The research house noted that Platinum Sentral, which contributes about 41% of FY16-18 estimated revenue (before including Menara Shell), had remained 100%-occupied as large tenants such as SPAD, SME and Pemandu were on leases of 6-15 years.
“We estimate that gross gearing would remain high at 0.42 times by end-FY16 estimate which could limit future sizeable acquisitions as MQReit could only borrow up to about RM274mil (statutory limit: 0.5 times). Nonetheless, we forecast that the purchase of Menara Shell via debt and new Reit units issuance has marginal impact to gross gearing,” Maybank said.
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