• Axis REIT reported a higher realised net profit of RM61m (+5.5% yoy) on the back of higher revenue and lower interest expense.
• However, the results were below market and our expectations due to higher maintenance expenses, lower carpark income and delays in completion of acquisitions.
• Maintain HOLD with a lower price target of RM1.97 (from RM1.98). At 4.6% 2021E distribution yield valuation looks fair.

6M20 Realised Net Profit Grew 5.5% Yoy, Below Expectations

Axis REIT reported a higher 6M20 realised net profit of RM61m (+5.5% yoy) on the back of a 2.2% growth in revenue attributable to rental from 6 newly acquired / commenced properties since end 3Q19. This was however dampened by waivers given on seasonal carpark rental for all its multi-tenanted buildings during the MCO and higher maintenance expense. 6M20 also saw lower finance cost due to its reduced gearing after the equity placement exercise in 4Q19 and BNM OPR cut. Management has declared a 6M20 DPU of 4.25 sen 9.8% lower yoy due to the increase in share base arising from a share placement exercise in December 2019. The 6M20 realised net profit made up 47% and 46% of street’s and our full year expectations – below market and our expectations due to higher maintenance expenses, lower carpark income and delay in completion of several acquisitions.

Sequentially, 2Q20 Earnings and DPU Were Higher

Sequentially, Axis REIT’s 2Q20 realised net profit came in higher at 3.2% qoq to RM30.8m attributable to a 1.1% growth in revenue, lower administrative expense and a reversal on provision of doubtful debt. In tandem with the higher earnings, a 2.15 sen DPU was declared, a 2.4% increase qoq.

Maintain HOLD With a Lower DDM-derived Target Price of RM1.97

We maintain our HOLD rating on Axis REIT with a lower target price of RM1.97 as we tweaked our assumptions by -5.1%/0.7%/0.6% for FY20/21/22E after incorporating (i) higher maintenance cost; (ii) delays in completion of its ongoing acquisitions; and (iii) the proposed acquisition of One Total Logistics Warehouse, Shah Alam. At a 4.6% 2021E distribution yield valuation looks fair considering its relatively stable earnings outlook. Upside risk: strong earnings driven by robust demand for industrial / logistic assets; downside risks include weaker-than-expected earnings due to lower rentals / offering of rental rebates and unexpected spikes in global bond yields.

Source: Affin Hwang Research - 27 Aug 2020