HLBank Research Highlights

Author: HLInvest   |   Latest post: Fri, 22 Jan 2021, 10:33 AM


Axis REIT - Acquisition of manufacturing facilities in iPark @Indahpura

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Axis REIT has proposed to acquire 3 properties from Axis AME IP Sdn Bhd for a cash consideration of RM28.2m. The properties are located within Kawasan Perindustrian i-Park, Bandar Indahpura in Kulai, Johor and are currently 100% tenanted. We are positive on the news as the acquisition amount is fair and is yield accretive. We retain forecast pending acquisition completion. Maintain BUY with unchanged TP of RM2.49. We like Axis REIT due to its high occupancy diversified portfolio and being one of the few Shariah compliant REITs.


Axis REIT has proposed to acquire 3 properties from Axis AME IP Sdn Bhd for a cash consideration of RM28.2m. The properties located within Kawasan Perindustrian iPark, Bandar Indahpura in Kulai, Johor and currently 100% tenanted by Perodua Sales Sdn Bhd, KES International Sdn Bhd and Beyonics Precision (Malaysia) Sdn Bhd in each properties; we note each property consists of a single-storey detached factory with mezzanine office and other ancillary buildings with a combined net lettable area (NLA) of 117.8k sq ft altogether.

The proposed acquisition will be funded by existing debt facility and is expected to be completed by end 4Q20. The total rental for 3 properties altogether is RM176.6k monthly (RM2.1m yearly), to be paid by each tenant upon completion of the acquisition.


Positive. We are positive on the acquisition as it is yield accretive, given that the net property income (NPI) yield is close to 7.5% vs its current NPI yield of 6%. With the new assets, Axis REIT’s FY21-22 earnings will improve by approximately 0.7%. We feel the acquisition’s price works out to be fair for an industrial space in Kulai, Johor and is about 9% lower than its combined market value (RM31.0m) based on the valuation by independent valuer.

Gearing. Axis REIT intends to utilise debt facility from its existing credit facilities. Gearing ratio is expected to increase to 29.35% from 28.7% (FY19), which is below the gearing limit of 60% prescribed by the Securities Commission Malaysia.

Forecast. We maintain our forecast pending completion of the acquisition

Maintain BUY, TP: RM2.49. We maintain BUY with unchanged TP of RM2.49. To note, our valuation is based on 1SD below 2-year historical average yield spread between Axis REIT and 10-year MGS yield in view of increased popularity in industrial properties, high occupant tenancy in its diversified portfolio and also one of the few Shariah compliant REITs.

Source: Hong Leong Investment Bank Research - 26 Nov 2020

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