Axis REIT’s FY21 core net profit of RM136.8m (+9.1% YoY) were within our and consensus’ estimates. Dividend of 2.41 sen per unit was declared. The improved performance was primarily supported by stronger revenue (+8.0% YoY), thanks to 5 newly acquired assets. Occupancy and gearing stood at 96% and 31% respectively. Axis REIT acquisition target will remain focused on Grade A logistics and manufacturing facilities. We maintain our forecasts, reiterate BUY call with unchanged TP of RM2.32 based on targeted yield of 4.6% on FY22 DPU.

Within expectations. 4Q21 core net profit of RM35.3m (+0.5% QoQ, +8.4% YoY) brought FY21’s sum to RM136.8m (+9.1% YoY). Core net profit was achieved after removing total EIs of RM63.6m (mostly on fair value gain) from the FY21 reported net profit of RM200.4m. The results were within our and consensus’ estimates, accounting for 96% and 99%, respectively.

Dividend. Declared 4Q DPU of 2.41 sen per unit which brought FY21 DPU to 9.49 sen (FY20: 8.75 sen). 2.03 sen was paid on 14 Jan 2022 and the remainder 0.38 sen (post placement exercise to avoid dilution of existing unit holders) going ex on 7 Feb 2022.

QoQ. Revenue increased to RM63.1m (+2.7%) thanks to newly acquired Xin Hwa Warehouse @ Pasir Gudang (21 Oct) paired with positive rental reversion. However, the jump in property expenses (+11.1% mainly due to higher maintenance costs) led to flattish NPI (+1.4%). Separately, Islamic financial cost increased (+5.2%) due to additional financing facilities to fund new acquisitions. As such, core net profit improved slightly to RM35.3m (+0.5%).

YoY/YTD. Top line rose (+9.5% YoY, +8.0% YTD), mainly backed by newly acquired properties; (i) Indahpura Facility 2 & 3 (12 Jan, 26 Feb), (ii) Beyonics I-Park Campus – Block F (3 Mar), (iii) Bukit Raja Distribution Centre 2 Shah Alam (31 Mar) and (iv) Xin Hwa Warehouse @ Pasir Gudang (21 Oct). NPI followed the improvement by 11.0% (YoY) and 9.6% (YTD). In turn, core net profit increased (+8.4% YoY, +9.1% YTD) in tandem with revenue.

Occupancy and gearing. Axis REIT has 58 properties in its portfolio; an increase of 5 properties from FY20. Weighted average lease expiry (WALE) stood at 5 years. Occupancy improved to 96% (from FY20: 91%); while gearing decreased to 31% (from FY20: 33%).

Outlook. Axis REIT’s acquisition target for FY22 is RM400m with prime focus on Grade A logistics and manufacturing facilities with long leases from tenants with strong covenants as well as well-located retail warehousing in locations ideal for last-mile distribution. We remain positive for FY22 with expectations of full year contribution from the newly acquired properties.

Forecast. Maintain forecast as the results were in line.

Maintain BUY, TP: RM2.32. We maintain our BUY call with an unchanged TP of RM2.32. To note, our TP is based on FY22 DPU on targeted yield of 4.6% derived from -1SD below 2-year historical average yield spread between Axis REIT and 10Y-MGS, 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 - 21 Jan 2022