Quill Capita falls 9.4% on downgrade

KUALA LUMPUR: Quill Capita share price fell 9.4% 8.5 sen to 81.5 sen in late morning trade on March 19 after a local research house said its valuations appeared demanding relative to other Malaysian REITS in terms of yield.

At 11.32am, it was down 8.5 sen to 81.5 sen. There were 30,000 units done.

RHB Research said on Quill Capita‘s valuation appeared demanding relative to other Malaysian REITs players in terms of yield as its share price rebounded to 90 after the plunge in February.

“We believe the current price level is unsustainable in view of rising concerns on the sustainability and stability of earnings. Chief among the risks faced by the company are occupancy risk where about 25% of total net lettable area (NLA) is up for renewal in 2009;

“Secondly, potential downward pressure on rental rates in view of current economic downturn and increasing office supply. Thirdly, potential devaluation in investment properties which could lead to higher gearing ratio,” it said.

However, RHB Research said QuillCapita’s gearing ratio remained manageable at 0.37 times in 4Q08. The company had low short term debt-to-total debt ratio of 0.23 times, which suggests lower refinancing risk in the near term.

“We expect gearing to improve to 0.35 times in FY09 as we do not expect any new asset injection in the near term,” it said.

The research house said softening in office rental rates due to the current economic slowdown as well as increasing supply did not bode well for Quill Capita.

RHB Research said the company would likely face bigger challenges in achieving higher rental rates for its office buildings.

"Meanwhile, despite the challenging retail outlook in the near term, we believe the long-term lease agreements (for Plaza Mont Kiara and Tesco Hypermarket in Penang) would help to mitigate the negative impact from the slowdown in the retail sector," it said.

By The EDGE Malaysia (by Joe Chin)