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PP 7767/09/2011(028730)

20 October 2010
RHB Research
Corporate Highlights
Malaysia
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su lts N ot e
20 October 2010
MARKET DATELINE

Quill Capita Trust Share Price


Fair Value
:
:
RM1.02
RM1.23
Flattish 3Q10 Numbers Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (QCapita; Code: 5123) Bloomberg: QUIL MK


Net
FYE Turnover profit EPU Growth PER DPU C. EPU P/NAV ROE Gearing GDY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (sen) (x) (%) (%) (%)
2009 67.4 32.4 8.3 10.2 12.3 7.7 - 0.8 7.0 0.4 7.5
2010f 69.0 34.8 8.9 7.3 11.4 8.2 8.9 0.8 6.6 0.3 8.0
2011f 72.0 36.4 9.3 4.7 10.9 8.6 9.1 0.7 6.7 0.3 8.4
2012f 73.9 37.6 9.6 3.4 10.6 8.9 9.4 0.7 6.7 0.3 8.7
Main Market Listing /Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

RHBRI Vs. Consensus


♦ Slightly below expectations. Quill Capita’s (QC) 3Q10 realised net income Above
of RM8.7m (+7% yoy; 2% qoq) came in 6% and 10% below ours and In Line
consensus estimates, on an annualised basis. Yoy 3% increase in top-line Below
was mainly due to increase in rental rates of some properties. Apart from the
Issued Capital (m shares) 390.1
filter-down of positive growth in rental contribution, effective capital, tenancy
Market Cap (RMm) 397.9
and asset management by the REIT manager, as well as some write-back of Daily Trading Vol (m shs) 0.1
administrative expenses have also led to a 7% increase in realised net 52wk Price Range (RM) 0.99-1.10
income. Major Shareholders: (%)

♦ Outlook. Going forward, we expect earnings to remain flattish, as rental of CapitaLand RECM P/L 30
Quill Group 30
some properties were locked in at a relatively flat rate 1-2 years ago during
economic slowdown. Next year, lease agreement for Wisma Technip and
Quill Building 9-DHL (XPJ) will be due for renewal. Some rental reversion of FYE Dec FY10 FY11 FY12
+2-5% can be expected, and hence it should contribute positively to net EPS revision (%) - - -
Var to Cons (%) 0.1 2.5 2.7
income from 2011 onwards.

♦ Risks. The risks include: (1) Unfavourable economic conditions; and (2) New
PE Band Chart

supply of commercial space that drives down rentals.


PER = 13x
♦ Forecasts. No change in our earnings forecasts. PER = 11x
PER = 9x

♦ Maintain Outperform. We think QC is lacking asset growth. However, the


underperformance is understandable as office REITs are struggling to
achieve positive rental growth, especially in the midst of unstable economic
environment. Furthermore, the oversupply of office space in KL city centre
also exerts pressure on rental. Although outlook is less exciting compared to
Relative Performance To FBM KLCI
retail and industrial REITs, we believe 7-8% dividend yield for QC is still
sustainable. We maintain our Outperform rating on QC, with an unchanged
FBM KLCI
indicative fair value of RM1.23, based on a 7% target yield for MREITs on our
FY11 DPU estimate of 8.6 sen.

Quill Capita

Loong Kok Wen, CFA


(603) 92802237
Please read important disclosures at the end of this report.
loong.kok.wen@rhb.com.my

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Table 2: Earnings Review (YoY Cumulative)


FYE Dec 2009 2010 YoY Observations/Comments
(RMm) 9M 9M Chg
Gross revenue 50.4 51.9 3% Slightly higher rental rates.
Net property income 38.8 39.7 2%
Interest income 0.3 0.3 12%
EI Derivative loss on the re-measurement of the fair values
0.0 0.6 n.m.
of interest rate swaps.
Expenditure (15.5) (15.6) 0%
Pretax profit 23.5 25.0 6%
Taxation (0.0) 0.0 (100%)
Net profit 23.5 25.0 6% Slightly below expectations.
EPU (sen) 6.03 6.27 4%
DPU (sen) 3.78 3.85 2%

Pretax margin 47% 48% 1% pt Topline grew while expenditure was capped.
Effective tax rate 0% 0%

Table 3: Earnings Review (QoQ)


FYE Dec 2009 2010 2010 QoQ Yoy Observations/Comments
(RMm) 3Q 2Q 3Q Chg Chg
Gross revenue 16.8 17.4 17.4 0% 3%
Net property income 12.9 13.3 13.4 1% 4%
Interest income 0.1 0.1 0.1 38% 51%
EI 0.0 0.2 (0.1) n.m. n.m.
Mainly due to the write-back of
Expenditure (4.9) (5.1) (4.8) (5%) (0%)
administrative expenses in 3Q10
Pretax profit 8.1 8.5 8.6 1% 6%
Taxation 0.0 0.0 0.0 n.m. n.m.
Net profit 8.1 8.5 8.7 2% 7%
EPU (sen) 2.07 2.19 2.22 1% 7%
DPU (sen) 0.00 3.85 0.00

Pretax margin 48% 49% 49%


Effective tax rate 0% 0% 0%

Table 4: Earnings Forecasts


FYE Dec (RMm) FY09a FY10F FY11F FY12F

Gross revenue 67.4 69.0 72.0 73.9


Revenue growth (%) 23.76 2.35 4.36 2.66
Property expenses (15.3) (16.5) (17.4) (17.4)
Net rental income 52.0 52.4 54.6 56.5
Interest Income 0.4 0.4 0.4 0.4
Change in fair value 0.7 0.0 0.0 0.0
Non-prop expenses (20.0) 18.0 18.6 19.2
PBT 33.1 34.8 36.4 37.6
Tax (0.0) 0.0 0.0 0.0
Net income 33.1 34.8 36.4 37.6
-realised 32.4 34.8 36.4 37.6
-unrealised 0.7 0.0 0.0 0.0

EPU 8.3 8.9 9.3 9.6


DPU 7.7 8.2 8.6 8.9
Dividend payout (%) 92.4 92.0 92.0 92.0
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or

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This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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