Axis REIT reported a solid set of results – 9M18 realised net profit grew 13% yoy to RM77m on contribution from new leases (Nestle) and acquisitions of four new assets; realised EPU grew by a weaker 1.5% due to placement of new units in 4Q17. 3Q18 DPU of 2.35 sen is the highest quarterly DPU since 3Q14. Overall, the results are within market and our expectations. Maintain HOLD with an unchanged price target of RM1.58. At 5.6% 2018E/6.2% 2019E yield, valuation is within historical trading range, looks fair.

9M18 Realised Net Profit Grew by 13% Yoy, Within Expectations

Axis REIT reported a solid set of results – 9M18 realised net profit grew by 13% yoy to RM77.4m on the back of higher revenue (+14.7% yoy), driven by rental from newly acquired assets (ie. Kerry Warehouse, Wasco Facility, Axis Shah Alam DC 4) and lease commencements of Damco Logsitic (1st Feb 2018) and Nestle DC (1st Jun 2018). Axis REIT’s 9M18 realised EPU grew by a weaker 1.5% yoy due to an increase in its share base (+11.5%). Overall, the results are within market and our expectations - Axis REIT’s 9M18 realised net profit accounted for 73% of street and our full year earnings forecasts.

Sequentially, realised net profit grew by 20% on rental from Nestle DC

Sequentially, Axis REIT’s 3Q18 realised net profit grew by 20% to RM29.3m, mainly driven by full quarterly rental from Nestle DC (vs 1 month of rental contribution in 2Q18). Management declared 2.35 sen DPU for 3Q18 (+17.5% yoy), the highest quarterly payout since 3Q14. The REIT has announced the implementation of Income Distribution Reinvestment Plan in conjunction with the payment of 3Q19 DPU.

Maintain HOLD With An Unchanged DDM-derived TP of RM1.58

We maintain our earnings forecasts, HOLD rating and DDM-derived price target of RM1.58. While we continue to like Axis REIT’s manufacturing and logistics assets, the prolonged weakness in the office market and risk of an OPR hike may cap its upside potential. At 5.6% 2018E/6.2% 2019E yield, valuation is within historical trading range and looks fair.

Source: Affin Hwang Research - 23 Oct 2018