Axis REIT’s FY19 core net profit of RM115.2m (+1.5% YoY) were within our estimates and consensus. Dividend of 2.20 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 expe nses, higher Islamic finance costs and rental loss from Scomi Facility. We maintain our forecasts pending today’s analyst briefing, and continue to maintain BUY call with unchanged TP of RM2.03 based on targeted yield of 4.7%.

Within expectations. 4Q19 core net profit of RM29.4m (+4.9% QoQ, -18.5% YoY) brought FY19 sum to RM115.2m (+1.5% YoY). The results were within our estimates and consensus, accounting for 99% and 97.9%, respectively.

Dividend. Declared 4Q DPU of 2.20 sen per unit; which 1.10 sen has been distributed on ex-date 12th Nov 2019 while the other 1.10 sen can be elected to be reinvested in new units under optional income distribution reinvestment plan (IDRP). This brings FY19 DPU to 9.3 sen (FY18: 8.7 sen), in line with our expectations.

QoQ. Revenue remains flat at RM55.4m (-0.6% QoQ); however, core net profit rose to RM29.4m (4.9% QoQ) given lesser administrative expenses (-26.2%), lower Islamic financing cost (-3.3%) and higher profit income also (i.e. interest income) (>100%).

YoY. Top line declined 10.8% attributable to rental loss from Axis Industrial Facility at Rawang (formerly known as Scomi Facility at Rawang). Property expenditure jumped 17.7% mainly due to higher operating expenses incurred for some properties, which in turn brought down the net property income (NPI) by 14.4%. As a result, bottom line decreased by 18.5%.

YTD. Revenue for FY19 of RM222.5m improved by 5.6% YoY; correspondingly, core net profit of RM115.2m showed a marginal increment of 1.5%. Higher revenue for FY19 YoY was mainly due to the; (i) commencement of lease on Axis Mega DC (1 June 2018), (ii) commencement of Axis Aerotech Centre at Subang (16 December 2018), (iii) rental from 3 newly acquired properties since the end of 3Q18 and (iv) positive rental reversion. Nonetheless, the increment was offset by the rise in property expense and the rental loss from Axis Industrial Facility at Rawang since July 2019. Similarly, Islamic financing cost has also escalated due to additional financing facilities utilised to fund new acquisitions.

Outlook. Axis REIT is still actively pursuing quality acquisitions with focus on Grade A logistics and manufacturing facilities as prime focus. We expect better FY20 with full year contribution from newly acquired properties (property in Batu Kawan and facilities in Nusajaya) which were completed during 3Q19.

Forecast. Maintain forecast for now pending results briefing later today. Notably, our EPU and DPU for FY20-21 has been diluted about c.12-13% due to the placement exercise recently.

Maintain BUY, TP: RM2.03. We maintain BUY with unchanged TP of 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 - 21 Jan 2020