NEWSBREAK

HLIB’s VIEW

Positive. We are positive on the acquisition as it is yield accretive, given the gross yield of 7.3% (before Islamic financing cost) vs its current yield of 5.2%. With the new assets, our FY20-21 earnings will improve by 0.6% and 0.4% respectively. We feel the acquisition price works out to be fair for industrial space in Kawasan Perusahaan Bukit Raja, Klang, Selangor and about 5.4% lower than its market value (RM39m) based on the valuation by independent valuer. The net book value of the property was RM2.6m as at June 30.

Gearing. Axis REIT intends to utilise debt facility of RM37m from its existing credit facilities. Gearing ratio is expected to increase to 38.1% from 37.3% (FY18), which is below the gearing limit of 50% prescribed by the Securities Commission Malaysia.

Forecast. We maintain our forecast pending completion of the acquisition.

Maintain BUY, TP: RM2.03. We maintain BUY with unchanged target price RM2.03. To note, our valuation is based on FY20f DPU on targeted yield of 4.7% which is derived from 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 - 26 Dec 2019