• Positive on the MYR27.3m asset sale, but marginal earnings impact from lower maintenance expenses.
• Nudge FY15-17 core net profit by +0.7% p.a..
• Maintain HOLD with a slightly higher MYR1.17 (+1 sen) DCFbased TP; share price downside limited by 6.2% net yield.

What’s New

QCT has proposed to dispose Quill Building 10 (QB10) in Petaling Jaya, Selangor to Aldwych Capital Sdn Bhd for MYR27.3m in cash or 3.0% above the market valuation of MYR26.5m appraised by DTZ Nawawi Tie Lung Property Consultants.

The sale of QB10 will result in a net gain of MYR0.8m; negligible. QB10 is currently a vacant 5-storey office building with a NLA of 68.4k sq. ft.. The disposal will likely be completed by 1H15.

What’s Our View

We are positive on the deal given its good pricing and potential capital redeployment into better yielding assets/reduction in debts. QB10 has not been generating rental income (‘zero’ occupancy rate) for more than two years, hence, the disposal will also release QCT from incurring maintenance costs.

Management intends to retain the proceeds for asset enhancement initiatives (AEI) for one of its properties in Cyberjaya. It is also considering to pare down its borrowings. Based on our ballpark calculation, the entire disposal proceeds could reduce QCT’s end- FY14 proforma net gearing to 32.0% from 35.1%.

We marginally increase FY15/16/17 core net profit forecasts by 0.7% p.a. and nudge our DCF-based TP to MYR1.17 (+1sen). While we remain cautious on QCT’s medium-term outlook due to huge incoming supply of office spaces, share price downside could be limited by its 6.2% net yield. HOLD.

Source: Maybank Research - 26 Feb 2015