HLIB ups MRCB-Quill REIT target price as 1Q profit beats forecast

KUALA LUMPUR (June 18): Hong Leong Investment Bank Bhd (HLIB) raised its target price (TP) for MRCB-Quill REIT (MQREIT) units to 79 sen from 71 sen and increased its earnings forecast for the group after the REIT reported first quarter core net profit, which was above estimates. HLIB maintains its "buy" call for MQREIT units.

HLIB analyst Nazira Abdullah wrote in note today that the research firm increased its MQREIT earnings forecast by 6% for financial year ending Dec 31, 2020 (FY20) and FY21 on lower expenses and contribution from new tenancy.

"We anticipate resilient earnings for FY20 from these new tenants. Furthermore, we believe MQREIT is relatively shielded from the Covid-19 and MCO (Malaysia's movement control order) impact due to its large exposure of office and miniscule exposure of retail unlike the other mall-based REITs. We noted that the current office market outlook for office REITs remains lacklustre due to unabated oversupply of office in KL city.

"However, we believe MQREIT (is) able to sustain its earnings, at least in the near term, due to their tenancy (agreement) with big corporations and MNCs (multinational corporations).

"We like MQREIT for its attractive dividend yield of 8.8% (highest among REITs in our universe) and its relatively more resilient earnings amid Covid-19 given minimal retail exposure unlike other mall-based REITs," Nazira said.

Yesterday, MQREIT said in a filing with Bursa Malaysia that 1QFY20 net profit rose to RM19.79 million from RM19.41 million a year earlier.

Today, Nazira said MQREIT's 1QFY20 core net profit of RM19.8 million was above HLIB's estimates but within consensus forecast, accounting for 32% and 26% of full-year estimates respectively.

Meanwhile, CGS-CIMB Securities Sdn Bhd said its MQREIT unit TP dropped from RM1.02 to 71 sen.

CGS-CIMB analyst Sharizan Rosely wrote in a note today that CGS-CIMB kept its "hold" call for MQREIT units in view of potential downside risk of rental reversions falling into negative territory and prolonged rental rebate periods.

"The RM14 million reduction to our FY20F revenue forecast captures the impact of the rebates, among others," Sharizan said.

At Bursa's 12:30pm break today, MQREIT unit's price settled up two sen or 2.9% at 71 sen, valuing the group at RM777.04 million. MQREIT saw some one million units traded.

MQREIT's latest reported net assets per share stood at RM1.20.