Axis REIT has proposed to acquire a property from Axis AME IP Sdn Bhd for RM16.3m. We are positive on the acquisition, as it is yield accretive, with an expected NPI yield of 6.6%. With the new asset, Axis REIT’s FY22-23 earnings will improve by approximately 0.3%-0.6%. Acquisition price works out to be reasonable for an industrial space in Kulai, based on valuation made by the independent valuer. We retain forecast pending acquisition completion. Maintain BUY with unchanged TP of RM2.32 based on targeted yield of 4.6% on FY22 DPU.

NEWSBREAK

Axis REIT has proposed to acquire an industrial facility from Axis AME IP Sdn Bhd for RM16.3m. The property is located within Kawasan Perindustrian i-Park, Bandar Indahpura, Kulai, Johor. It consists of a single-storey detached factory with an annexed double-storey office building and ancillary building. The total lettable area is 60k sq ft.

The proposed acquisition will be funded by existing debt facility and is expected to be completed by 1HFY22. Furthermore, the property is currently 100% tenanted by HQPack Sdn Bhd, which manufactures industrial packaging for the high-end semiconductor industry. The lease term is for a fixed period of 10 years and 1 month with an option to renew for another term of 3 years. The first 3 years would be at a monthly rental of RM90k.

HLIB’s VIEW

Positive. We are positive on the acquisition as it is yield accretive at net property income (NPI) yield of 6.6%, at par with its current NPI yield of 6.7%. With the new asset, Axis REIT’s FY22-23 earnings will improve by approximately 0.3%-0.6%. The location is well-connected via the Second Link Expressway and North-South Expressway. Acquisition price worked out to be at RM271 psf, which is reasonable for an industrial space in Kulai (c. RM260 to RM350 psf based on various websites) based on the valuation made by the independent valuer. Furthermore, Axis REIT already owns 9 properties within this industrial park, and this property will enhance Axis’ footprint within the area.

Gearing. Axis REIT intends to utilise debt facility from its existing credit facilities. Gearing ratio is expected to increase to 33% from 31% (FY21), this is still below the gearing limit of 60% (temporary increment from 50% till 31 Dec 2022) prescribed by the Securities Commission Malaysia.

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

Maintain BUY, TP: RM2.32. We maintain BUY with unchanged TP of RM2.32 based on FY22 DPU on targeted yield 4.6% 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 - 23 Feb 2022