Results

• 6MFY16 reported gross revenue of RM84.9m (+1.43% yoy), normalized net profit of RM46.7m (-1.76% yoy), accounting for 46.7% of our and 48.2% of consensus estimation.

Deviations

• Slightly lower than expectation due to lower incremental rental income.

Dividends

• Declared 2Q DPU of 2.05 sen (2QFY15: 2.15 sen), at a payout of 99.84%, going ex on 16 Aug 2016, representing an annualized yield of 4.58%.

Highlights

• Yoy, rental income grew marginally (1%) on the back of newly acquired assets at Beyonics i-Park Campus Block A,B,C and D. However net profit was down 4.9% given higher maintenance expenses and financing cost.

• Qoq, both revenue & net profit improved by 1% on full recognition of the newly assets as the acquisition was completed at the end of January 2016.

• YTD, revenue was up by 1% on the back of the newly acquired assets and rental reversion but net profit was down 3.2% given higher maintenance expenses and financing cost attributable to the acquisition.

• NPI was relatively stable at 84%. Total capex spent during the quarter for asset enhancement were RM6.61m.

• Total properties stand at 38 and it will continue to grow to 40 assets once the acquisition of logistics warehouse at Pasir Gudang and manufacturing facility at Rawang, Selangior are concluded by 2H.

• Current gearing is circa 35% and will likely increase to 38% post-acquisition, still well below the prescribed gearing limit of 50%, with plenty of headroom for further acquisition.

Risks

• High concentration on logistic warehouse, office / industrial and manufacturing facilities.

• Prolonged erosion in consumer sentiment.

• Slower rental reversion as compared to other M-REITs.

Forecasts

• Unchanged pending more details from results briefing later today.

Rating

HOLD, TP: RM1.68

• 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 RM1.68.
• Targeted yield remain unchanged at 5.3%, based on historical average yield spread of Axis REIT and 10-year MGS.

Source: Hong Leong Investment Bank Research - 5 Aug 2016