Axis REIT’s 1QFY22 core net profit of RM39.1m (+10.9% QoQ, +22.7% YoY) was within both ours and consensus expectations. Dividend of 2.42 sen per unit was declared; of which 1.20 sen per unit can be reinvested under IDRP. QoQ/YoY improvement was mainly backed by new revenue contribution (5 properties in FY21, and 2 properties in 1QFY22). Occupancy and gearing stood at 96% and 29% respectively. We remain positive for FY22 driven by full year contribution from 5 acquired properties in FY21 as well as new acquired properties during the year. Maintain our forecasts, reiterate BUY call with unchanged TP of RM2.10. Our TP is based on targeted yield 4.6% on FY23 DPU.

Within expectations. 1QFY22 core net profit of RM39.1m (+10.9% QoQ, +22.7% YoY) came in within our and consensus’ estimates, accounting for 25% and 26% of respective full year forecasts.

Dividend. Declared DPU of 2.42 sen per unit, going ex on 6th May 2022; from this, 1.20 sen per unit can be elected to reinvest in new units under optional income distribution reinvestment plan (IDRP) (1QFY21: 2.23 sen).

QoQ. Gross rental income improved to RM66.5m (+5.4%) mainly thanks to 2 newly acquired properties; Pasir Gudang Logistics Warehouse 2 (7th Mar) and Indahpura Facility 4 (8th Mar). Following this, flattish property expenses (-0.2%) and lower Islamic financing costs (-14.6%) led to the increase in core net profit (+10.9%).

YoY. Top line rose 15.9%, primarily backed by 5 newly acquired properties in FY21 and positive rental reversion. Accordingly, slower property expenses growth (+2.1%) and Islamic finance costs (+1.9%) helped to lift core net earnings quicker by +22.7% to RM39.1m.

Occupancy and gearing. Axis REIT has 60 properties in its portfolio; an increase of 2 properties from FY21. Weighted average lease expiry (WALE) stood at 5.2 years. Occupancy remained stable at 96%; while gearing decreased to 29% (from FY21: 31%).

Outlook. Axis REIT’s estimated value of acquisition target for FY22 is RM120m 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 5 new acquired properties in FY21 as well as new properties in FY22.

Forecast. Maintain forecast as the results were in line.

Maintain BUY, TP: RM2.10. We maintain our BUY call with an unchanged TP of RM2.10. To note, our TP is based on FY23 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 (92% of properties on industrial titles), high occupant tenancy in its diversified portfolio and is also one of the few Shariah compliant REITs.

Source: Hong Leong Investment Bank Research - 21 Apr 2022