• Axis REIT reported a higher 3Q20 realised net profit of RM31.8m (+2.4% qoq) on rental contributions from a newly acquired property and higher carpark income.
• However, the results were slightly below market and our expectations due to higher maintenance expenses.
• Maintain HOLD with an unchanged 12-month price target of RM1.97. At a 4.6% 2021E distribution yield, the valuation looks fair.

3Q20 Realised Net Profit Grew 2.4% Qoq

Axis REIT reported a decent set of results – 3Q20 realised net profit increased by 2.4% qoq to RM31.8m on the back of 3.4% higher revenue qoq to RM57m, attributable to the commencement of rental from 1 newly acquired property during the quarter and higher carpark income. Recall that AXREIT provided a seasonal carpark rental waiver for its multi-tenanted buildings during the MCO period. This was, however, dampened by a 7.1% increase in maintenance expense. In tandem with better earnings, the quarterly DPU was higher at 2.25 sen (+4.7% qoq).

9M20 Earnings Came in Higher

Cumulatively, Axis REIT’s 9M20 realised net profit came in higher at RM92.8m, (+8.2% yoy), driven by 3.6% growth in revenue to RM166.7m attributable to rental from newly acquired / commenced properties. Financing costs were also 20% lower yoy due to lower gearing from the equity placement exercise in 4Q19 and the lower interest rate environment. At 72-73% of the street’s and our full-year earnings forecasts, Axis REIT’s 9M20 earnings were slightly below both expectations. The variation to our forecast was due to the higher maintenance expense. Management declared a 9M20 DPU of 6.50 sen, 7.9% lower yoy due to the increase in share base arising from a share placement exercise in December 2019.

Maintain HOLD With An Unchanged DDM-derived Target Price of RM1.97

We lowered our 2020 EPS forecast by 2.9% to incorporate the higher maintenance cost and delays in completion of property acquisitions due to slower progress during this pandemic period. However, we maintain our 2021-2022 EPS forecasts. Overall, we maintain our HOLD rating on Axis REIT with an unchanged target price of RM1.97. At a 4.6% 2021E distribution yield, Axis REIT’s 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 - 22 Oct 2020