Axis REIT reported a solid set of results – 1Q19 realised net profit grew 22% yoy to RM28.9m on contribution from Nestle’s lease at Axis Mega DC, full-quarter earnings from Axis Aerotech Centre @ Subang, and contributions from new assets. Management has declared a 2.35 sen DPU for 1Q19, 21.1% higher yoy. Overall, the results are within market and our expectations. Maintain BUY with an unchanged price target of RM2.04. With 5.6% yields for 2019E and 2020E, the stock looks attractive in view of the sector-leading 2019E EPU growth of 7.6% and solid asset occupancy.

1Q19 Realised Net Profit Grew by a Solid 22%, DPU Increased by 21%

Axis REIT reported a solid set of results – 1Q19 realised net profit grew by 21.8% to RM28.9m on the back of higher revenue (+19.2% yoy), driven by: (i) contribution from Nestle’s lease at Axis Mega DC which commenced on 1 June 2018; (ii) full-quarter rental contribution from Axis Aerotech Centre @ Subang and; (iii) contributions from newly acquired assets (ie. Beyonics i-Park Campus Block E, Senawang Industrial Facility). In tandem, NPI and realised EPU grew by 21% yoy, translating to a higher DPU of 2.35 sen (+21% yoy). Overall, the results were within market and our expectations - Axis REIT’s 1Q19 realised net profit accounted for 24% of the street’s and our full-year earnings forecasts.

Sequentially, 1Q19 DPU Slipped by 4% Due to Higher Base in 4Q18

Axis REIT’s 1Q19 realised net profit fell by 20% qoq (or RM7.2m) due to the recognition of an additional RM6.4m revenue in relation to the Nestle lease in 4Q18 pursuant to MFRS117. Under the accounting standard, Axis REIT had in 4Q18 booked in rental for the rent-free period during Feb-May 2018, to be amortised to the P&L throughout the tenancy period. The DPU declined by a mild 4% qoq due to higher costs.

Maintain BUY With An Unchanged DDM-derived TP of RM2.04

We maintain our earnings forecasts, BUY rating and DDM-derived price target of RM2.04. We continue to like Axis REIT for its industrial / warehouse asset portfolio, strong management team, sector-leading EPU growth in 2019E and attractive 5.6% yields for 2019E and 2020E. Key upside risk: stronger-than-expected earnings. Key downside risks: lowerthan-expected asset occupancy rates, further weakening of the office market, delay in securing tenant(s) for the Axis Mega DC 2, and an unexpected increase in the OPR / 10-year MGS yield.

Source: Affin Hwang Research - 30 Apr 2019