Axis REIT’s FY18 core net profit of RM113.5m (+24.4% YoY) was slightly above our expectations but in line with consensus’ expectations. Dividend of 2.45 sen per unit was declared. The improvement was primarily supported by revenue contribution from newly acquired assets, but slightly offset by the increase in property expenses and Islamic finance costs. We maintain our forecasts pending today’s analyst briefing, and continue to maintain HOLD call with unchanged TP of RM1.62 based on targeted yield of 5.6%.

Above expectations. FY18 revenue of RM210.6m (+23.8% YoY) translated into a core net profit of RM113.5m (+24.4% YoY). The results were slightly above our expectations but in line with consensus’ expectations, accounting for 108% and 105% of full year forecast respectively. The deviation was mainly due to higher-than expected revenue contribution.

Dividend. Declared 4Q DPU of 2.45 sen per unit, going ex on the 8th February 2019. This brings FY18 DPU to 8.7 sen (FY17: 8.2 sen), in line with our expectations.

QoQ/YoY. Revenue for 4Q18 of RM62.1m (+15.3% QoQ; +48.1%% YoY) translated to core net profit of RM36.1m (+23.2% QoQ; +60.7% YoY). The boost was mainly due to the newly completed acquisition of (i) Beyonics i-Park Campus – Block E and (ii) Indahpura Facility 1 on the 9th of August 2018, (iii) Senawang Industrial Facility on 5th

December 2018 and (iv) commencement of lease of Upeca Aerotech Sdn Bhd at Axis Aerotech Centre on 16th December 2018. Nevertheless, the increment was partially offset by the increase in property expenses.

FY18. Core net profit for FY18 of RM113.5m showed an increment of 24.4% (FY17: RM91.2m). The lift was mainly driven by new rental contribution from newly acquired properties such as (i) Axis Shah Alam DC4 (4th June 2018), (ii) Beyonics i-Park Campus – Block E and (iii) Indahpura Facility 1 (9th August 2018) and (iv) Senawang Industrial Facility (5th December 2018). This came along with commencement of lease of (i) Nestle’s lease at Axis Mega DC (June 2018) and (ii) Upeca Aerotech Sdn Bhd’s lease at Axis Aerotech Centre (December 2018). However, the improvement was slightly offset by the increase in property expenses due to the new properties added into the portfolio (4Q18: 45 properties, 3Q18: 44 properties). Similarly, Islamic financing cost increased due to additional financing facilities utilised to fund new acquisitions.

Forecast. Maintain pending results briefing later today.

Maintain HOLD, TP: RM1.62. Maintain our HOLD rating, with unchanged TP of RM1.62. Our TP is based on targeted yield of 5.6% which is derived from 2 years historical average yield spread of Axis REIT and 10 year MGS.

Source: Hong Leong Investment Bank Research - 23 Jan 2019