Results

• Within expectations. 2QFY17 normalised net profit of RM23.5m (qoq: +1.4%; yoy: +5.1%) translated into 1HFY17 normalized net profit of RM46.8m (+4.89% yoy). The results are broadly within expectations, accounting for 48.2% of our and 47.6% of consensus estimates.

Deviations

• None.

Dividends

• Declared 2Q DPU of 2.17 sen.

Highlights

• YoY/ QoQ: 2QFY17 normalized net profit of RM23.5m grew (qoq: +1.4%; yoy: +5.1%) on the back of newly acquired assets at Scomi Facility@Rawang coupled with decrease in administrative expenses and financing cost.
• YTD: Normalized net profit increased by 4.9% mainly due to newly acquired assets at Scomi Facility@Rawang and higher rental rate.
• In a separate announcement, Axis has entered into a sale and purchase agreement to acquire a property which comprises two parcels of land together with erected buildings and structures located within the Kawasan Perindustrian MIEL Gebeng, Kuantan from Wah Seong Corporation Berhad (Hold, TP: RM0.87) for a cash consideration of RM155m.
• The property will then be leased back to the vendor at an agreed monthly rental of RM971, 958.64 (step up rate of 10% every 3 year) for a period of 15 years from SPA completion date with an option to renew for another 5 years.
• We are positive on this yield-accretive acquisition with initial net yield of 7% vis-�-vis its current yield of circa 5.3%. The property will be fully tenanted under a long leasing term.
• The acquisition will be fully funded by Axis?s existing debt facility, which will increase its net gearing to around 39% post-acquisition.

Risks

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

Forecasts

• Estimated impact to our earnings forecast from the acquisition is circa +4-5% after deducting financing cost. However, we make no changes to our forecast pending for more updates from results briefing later today.

Rating

HOLD ↔ , TP: RM1.71 ↔

• Maintain HOLD recommendation as we expect the benefits from the revision of REIT guidelines to only emerge over a longer-term horizon and rerating of this stock will be warranted once (i) improved take up rate on its vacant/low occupancy properties; and (ii) securing near-term NLA expiry.

Valuation

• Maintain HOLD with unchanged TP of RM1.71 (based on FY18 DPU with unchanged targeted yield of 5.1%).

Source: Hong Leong Investment Bank Research - 25 Jul 2017