Axis REIT reported a solid set of results – 1Q18 realised net profit grew by 4% on contributions from new assets (eg, Wasco warehouse). On a per-unit basis, EPU fell by 7% yoy due to placement of new units in 4Q17. Overall, the results are within market and our expectations. Maintain BUY with a revised DDM-derived price target of RM1.58. We like its asset portfolio (manufacturing facilities and warehouse / logistics assets account for 69% of NLA) and the current valuation of 6.1% 2018E distribution yield looks attractive.

Higher 1Q18 Realised Profit (+4%), But Placements Dilute EPU / DPU

Axis REIT reported higher 1Q18 realised net profit of RM23.7m (+3.9% yoy) on higher revenue (+5.7% yoy), driven by contributions from the newly acquired Kerry Warehouse and Wasco facility, as well as commencement of tenancy of Damco Logistics in February 2018. Placement of new shares in 4Q17 has lifted its share base by 11.5%, leading to lower 1Q18 realised EPU of 1.92 sen (-6.8% yoy). Similarly, 1Q18 DPU came in lower at 1.94 sen (-9.8% yoy).

Results Within Expectations, Nestle DC to Lift 2H18 Earnings

The results were within market and our expectations - 1Q18 realised net profit accounted for 22-23% of street and our full-year earnings forecasts. The commencement of the Nestle DC lease (RM19.2m per annum) on 1 June 2018 will increase Axis REIT’s quarterly revenue by 11%.

Construction of Upeca Plant, Acquisitions of 3 Facilities Are Ongoing

Axis REIT has started the construction of a RM46.8m manufacturing plant for Upeca Aerotech (handover date in December 2018, 20-year lease, with option of 2 terms of 6 years). Management has announced recently an RM87m acquisition of a warehouse in Seksyen 28 Shah Alam, leased to Teraju Sinar for 6 years at an initial yield of 7%. Elsewhere, management is in discussions to acquire a manufacturing facility in Senawang (RM18.5m) and Indahputra, Johor (RM38.7m).

Tweaking FY18/19/20E EPU by -2%/+2%/+2%

We lower our FY18E EPU by -2% due to slower-than-expected commencement of the Nestle DC lease (handed over on 2 February 2018, rental commences on 1 June 2018, vs our expectation of 1 April). Elsewhere, we raise our FY19-20E EPU by 2% after incorporating rentals from the proposed acquisition of the RM87m Shah Alam warehouse.

Source: Affin Hwang Research - 26 Apr 2018