Results

• 6MFY15 gross revenue of RM84.1m was translated into normalized net profit of RM48.5m.

• Although top-line was in-line with ours and consensus expectations, normalised PAT only accounted for 43.7% and 44.9% respectively.

Deviations

• Higher than expected cost arising from acquisition of properties.

Dividends

• Declared 2nd interim dividend of 4.30 sen (2QFY14: 5.3 sen), bringing YTD dividend of 8.4 sen (1HFY14: 10.6 sen).

Highlights

• Gross revenue grew by +17.7% yoy, mainly contributed by assets that were newly injected into the trust - SADC 2, SADC 3, Axis MRO Hub and Axis Steel Centre @ SiLC.

• Quit rent and assessment experienced double digit growth, similar to manager fee, trustee fee and depreciation. We believe this is attributable to higher asset under management as four assets were newly added on the list during the quarter under review.

• In a more positive note, NPI margin has been fairly stable at 86% (Figure #5).

• On the proposed acquisition of lands in Port Klang, we note that due diligence exercise is ongoing in finalizing the terms of the transaction.

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 RE IT sector to government bonds.
• REIT sector could underperform in a bullish market as investors would prefer stocks which give higher capital appreciation.

Forecasts

• We made changes in our forecast as we factor in higher cost in relation to newly acquired properties. As a result, our FY15-17 DPU forecasts are cut by 4%.

Rating

HOLD , TP: RM3.44

• Posi tives: We like the uniqueness of the trust given its exposure to industrial properties unlike the other players of M-REITs which are either retail or office or combination of both.

Negatives

• : Highly specialised portfolio on industrial / manufacturing properties makes Axis REIT the most sensitive to adverse changes in macroeconomics.

Valuation

Maintain HOLD recommendation but TP cut to RM3.44 (previously RM3.53) post earnings adjustment.

• Targeted yield remain unchanged at 5.5%, 1.5SD below historical average yield spread of Axis REIT and 7-year MGS.

Source: Hong Leong Investment Bank Research - 4 Aug 2015