Results

• 1QFY16 gross revenue of RM41.22m (+1.43% yoy) was translated into normalized net profit of RM23.31m (-1.76% yoy), accounting for 23.2% of our and 21.6% of consensus full year estimation.

Deviations

• Largely in-line as positive rental reversion of huge NLA expiry to contribute in coming quarters.

Dividends

• Declared 1Q DPU of 2.05 sen (1QFY15: 2.05 sen), a payout of 99.83% at an annualized yield of 5.13%, representing 23.2% of our full year DPU forecast. The gross electable portion of 1.00 sen per unit can be elected to be reinvested in new units at a fixed pricing of RM1.50 per new unit.

Highlights

• Results are deemed largely in-line as we foresee positive rental reversion from its 26.54% of total NLA to start contributing in upcoming quarters with 50% of the lease expiry in 2016 (26.5% of port folio) has been renewed so far at an average of 4.17% rental reversion.

• Gross revenue improved on the newly RM61m acquired assets at Beyonics i-Park Campus Block A,B,C and D since end of January 2016 and higher maintenance cost was spent during the quarter. We expect full year contribution to come in at circa RM4.8m.

• Overall occupancy rate was steady at 92% and AEIs spent during the quarter amounted to RM3.642m, within our estimation of RM10m per year.

• Notwithstanding a challenging office properties market, management expects minimal impact from its office portfolio (at 81% occupancy) as it contributes only circa 8% to entire portfolio.

• On the plan of turning PDI Centre into mega distribution centre, we understand that the redevelopment is in the progress now.

Risks

• High concentration on logistic warehouse, office / industrial and manufacturing facilities.
• Prolonged erosion in consumer sentiment and monetary policy tightening resulting higher attrition rate.
• Slower rental reversion as compared to other M-REITs.

Forecasts

• Unchanged.

Rating

HOLD , TP: RM1.60

• Positives: We like the uniqueness of the trust given its mixed exposure to industrial properties compared to the other players of M-REITs.

Negatives

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

Valuation

• Maintain HOLD recommendation with unchanged TP at RM1.60.
• Targeted yield remain unchanged at 5.5%, based on historical average yield spread of Axis REIT and 10-year MGS.

Source: Hong Leong Investment Bank Research - 26 Apr 2016