Axis REIT’s 1H19 core net profit of RM57.8m (+20.0% YoY) was within both ours and consensus expectations. 2.36 sen of DPU was declared. The lift was primarily supported by improved contribution of rental proceeds from newly acquired properties and positive rental revision, but slightly offset by higher property expenses and finance costs. We maintain our forecast and BUY call with unchanged TP of RM1.93 based on targeted yield of 4.9%. We continue to like Axis REIT due to its high occupancy diversified portfolio and being one of the few Shariah compliant REITs.

Within expectations. 1H19 revenue of RM111.4m (+17.6% YoY) translated into a core net profit of RM57.8m (+20.0% YoY). The results were within both ours and consensus expectations, accounting for 49% and 48% of full year forecast respectively.

Dividend. Declared 2Q DPU of 2.36 sen per unit (2Q18: 2.00 sen), going on ex on the 7th August 2019.

QoQ. Revenue for 2Q19 of RM55.0m (-2.3%) translated to core net profit of RM28.9m (+0.3). The increase was mainly due to increase in profit income however, it was partially being offset by lower property income due to lower recoverable income and increase in trust expenses.

YoY. Revenue increased 13.5% followed by an increase in core net profit by 18.2%. This was mainly due to the completion of acquisition in Axis Shah Alam DC4 and commencement of lease in Axis Mega DC. Profit income too contributed to the increase. The gain was partially being offset by the increase in financing costs.

YTD. Revenue for 1H19 of RM111.4m increased by 17.6% from RM94.7m in corresponding period 1H18. Likewise, core net profit of RM57.8m showed an increment of 20.0% (1H18: RM48.2m). The improvement was primarily contributed by the acquisition of Axis Shah Alam DC4, commencement of lease at Axis Mega DC back in June 2018 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 (2Q19: 45 properties; 2Q18: 42 properties) and also the increase in Islamic financing cost due to additional financing facilities utilised to fund the new acquisition.

Outlook. Axis REIT is still actively pursuing quality acquisitions with focus on Grade A logistics and manufacturing facilities as prime focus. We expect better 2H with full year revenue contribution from acquired properties in FY18.

Forecast. Maintain pending results briefing later today.

Maintain BUY, TP: RM1.93. Maintain our BUY rating, with unchanged TP of RM1.93 based on 1SD below 2-year historical average yield spread between Axis REIT and 10-year MGS yield in view of increased popularity in industrial properties, high occupant tenancy in its diversified portfolio and also one of the few Shariah compliant REITs.

Source: Hong Leong Investment Bank Research - 25 Jul 2019