Axis REIT’s 1HFY21 core net profit of RM66.4m (+9.0%) were within ours and consensus estimates. Dividend of 2.40 sen per unit was declared. Overall improvement was thanks to the newly acquired properties. Besides, occupancy and gearing stood at 94% and 36% respectively. We expect a better 2HFY21 backed by newly acquired properties and secured tenancies. We maintain our forecasts, reiterate our BUY call with unchanged TP of RM2.54. We like Axis REIT as the leading industrial REIT player (92% of its portfolio) for its resiliency amid the pandemic.

Broadly within expectations. 2QFY21 core net profit of RM34.5m (+8.4% QoQ, +11.1% YoY) brought up 1HFY21 core net profit to RM66.4m (+9.0% YoY). Core net profit was arrived after removing provision of doubtful/bad debts of RM3.6m. The results were broadly within both ours (46%) and consensus (47%) full year expectations.

Dividend. Declared 2Q DPU of 2.40 Sen, Going Ex on 3 Rd Aug 2021 (2Q20: 2.15 Sen).

QoQ. Gross rental income increased (+5.3%) thanks to contributions from newly acquired properties (i) Indahpura Facility 2 & 3 (12 Jan, 26 Feb), (ii) Beyonics I-Park Campus – Block F (3 Mar) and (iii) Bukit Raja Distribution Centre 2 Shah Alam (31 Mar) as well as commencement of new tenancies at Axis Industrial Facility @ Rawang and at D8 Logistics Warehouse. Lower property expenses (-6.3%) was mainly due to lower maintenance costs incurred which led the increase in net property income (NPI) (+7.3%). Despite higher Islamic financing costs (+8.4%) to fund new acquisitions, core net profit increased by +8.4%.

YoY. Top line rose (+7.7%) mainly backed by the newly acquired properties. Property expenses remained flattish while Islamic financing costs increased (+15.7%) due to additional financing facilities to fund new acquisitions. Overall, core net profit increased to RM34.5m (+11.1%).

YTD. Revenue improved (+5.6%) due to the 5 newly acquired properties in FY20 as well as 4 properties in FY21 mentioned above, which cushioned the slight drop in seasonal and visitor car park income. NPI followed the uptick (+6.3%) and core net profit increased (+9.0%) thanks to lower administrative expenses (-19.2%) which mitigated higher Islamic financing costs (+11.0%).

Occupancy and gearing. With 57 properties and 153 tenants, portfolio occupancy increased to 94% (1QFY21: 91%), of which 47 properties are fully occupied. Gearing remained unchanged at 36%.

Outlook. We foresee a better 2HFY21 on the back of the newly acquired properties and tenancies as well as anticipating the completion of the 2 ongoing acquisitions (Figure #2) that will contribute positively into Axis’s earnings moving forward.

Forecast. We Maintain Our Forecasts as Results Were in Line.

Maintain BUY, TP: RM2.54. We maintain our BUY call with an unchanged TP of RM2.54. To note, our TP is based on FY22 DPU on targeted yield of 4.2% derived from 1SD below 2-year historical average yield spread between Axis REIT and MAG10YR, in view of increased popularity in industrial properties, high occupant tenancy in its diversified portfolio and is also one of the few Shariah compliant REITs. The stock also has shown resilient earnings throughout the pandemic.

Source: Hong Leong Investment Bank Research - 22 Jul 2021