• Axis REIT has proposed a share split of every one existing unit into two units in Axis REIT.

• As at 31 December 2014, the issued and paid up share capital stands at RM1,044.7m comprising 547.5m units.

• The proposed share split is expected to be completed by first half 2015.

• The rationale for the share split is to adjust the market price of the Units and results in the Unit to be more affordable and enable wider group of investors to participate in the growth of Axis REIT.

Highlights

• Although, theoretically, there are no changes to fundamentals, we are slightly positive on the proposed share split as it will serve to enhance the liquidity and marketability of the shares.

• Net asset value is expected to adjust from RM2.50 to RM1.24 based on enlarged base of 1.08bn units.

• Post exercise, the ex-share price and ex-target price will be adjusted to RM1.76 and RM1.78 respectively.

• The share split is not expected to have any material impact on Axis REIT distribution policy, which is approximately 99.9% dividend policy.

Risks

• High concentration on logistic warehouse, office / industrial and manufacturing facilities subject Axis REIT to risk of significant slowdown in economic activities.
• Slower rental reversion (only 2 – 3% per annum) as compared to other M-REITs (5 – 7% per annum).
• Rise in interest rate will shift investor’s appetite from REIT sector to government bonds.
• REIT sector could underperform in a bullish market as investors would prefer stocks which give higher capital appreciation.

Rating

HOLD , TP: RM3.57

• We like the uniqueness of the trust given its exposure on industrial properties unlike the other players of M-REITs which are either retail or office or combination of both. However, current fundamentals are already largely reflected in price.

Valuation

We maintain HOLD recommendation and target price of RM3.77 from targeted yield of 6.2% based on historical average yield spread between Axis REIT and 7-year MGS.

Source: Hong Leong Investment Bank Research - 4 Mar 2015