Axis REIT’s 1H18 core net profit of RM48.5m (+3.0% YoY) was within both ours and consensus expectations. 2 sen of DPU was declared. The boost was essentially supported by improved contribution of rental proceeds from newly acquired properties and positive rental revision, but slightly offset by the increase in property expenses and finance costs. We maintain HOLD call with unchanged TP of RM1.55 based on targeted yield of 5.7%.

Within expectations. 1H18 revenue of RM94.7m (+9.6% YoY) translated into a core net profit of RM48.2m (+3.0% YoY). The results were within both ours and consensus expectations, accounting for 48% and 46% of full year forecast respectively.

Dividend. Declared 2Q DPU of 2.00 sen per unit (2Q17: 2.17 sen), going on ex on the 16th August 2018.

QoQ/YoY. Revenue for 2Q18 of RM48.5m (+5.0% QoQ, +13.7% YoY) translated to core net profit of RM24.5m (+3.4% QoQ, +4.0% YoY). The increase was due to the new completion of Axis Shah Alam DC4 acquisition on the 4th of June, commencement of tenancy at D21 Logistics Warehouse and improved contribution from Kerry Warehouse and Wasco Facility. The gain was partially being offset by the increase in property expenses and financing costs.

YTD. Revenue for 1H18 of RM94.7m increased by 9.6% from RM86.4m in corresponding period 1H17. Likewise, core net profit of RM48.2m showed an increment of 3.0% (1H17:RM46.8m). The improvement was primarily contributed by the completion of Axis Shah Alam DC4 acquisition in June, the introduction of tenancy at D21 Logistics Warehouse, higher contribution from Kerry Warehouse and Wasco Facility and paired with overall positive rental reversion. However, the increment was slightly offset by the increase in property expenses due to the new properties added into the portfolio (2Q18: 42 properties) and also the increase in Islamic financing cost due to additional financing facilities utilised to fund the new acquisition.

Forecast. Maintain pending results briefing later today.

Maintain HOLD, TP: RM1.55. Maintain our HOLD rating, with unchanged TP of RM1.55 based on targeted yield of 5.7% which is derived from 2 years historical average yield spread of Axis REIT and 10 year MGS.

Source: Hong Leong Investment Bank Research - 7 Aug 2018