Period

4Q15/FY15

Actual vs. Expectations

FY15 realised net income (RNI) of RM91.5m came in below market’s consensus and our expectation, at 92% of both full-year forecasts.

We believe this is attributable to lower-than-expected gross rental income (GRI) and compression in EBIT margins from 77.4% to 72.9%.

Dividends

A final dividend of 2.0 sen was declared (which includes a 0.15 sen non-taxable portion). FY15’s GDPU of 8.4 sen constitutes up to 93% of our FY15E GDPU of 9.0 sen (5.7% yield), hence is below expectation.

Key Results Highlights

QoQ, topline revenue fell by 9.6% to RM38.8m, possibly on lower occupancy rates. In terms of margin, EBIT margin was lower by 4ppt at 70.8% due to higher operating costs. This led to lower RNI at RM21.8m (- 8.2%). Do note that there is a fair value revaluation deficit of RM2.9m this quarter, mainly attributable to revaluation deficit from Axis PDI Centre (-RM7.2m) and Axis Business Park (-RM3.9m).

YoY, topline grew by 18.3% to RM165.7m likely on positive reversions and post full year-contributions from acquisitions in 4Q14, namely: (i) Axis MRO Hub, (ii) Axis Shah Alam DC 3, (iii) Axis Steel Centre@SiLC, and (iv) Axis Shah Alam DC 2 in 1Q15. However, RNI margins compressed by 2.8ppt to 55.3%, from: (i) higher expenditure (+34.6%), and (ii) higher financing cost (+25.5%), likely due to additional funds required to fund the abovementioned acquisitions. As a result, RNI only increased by 12.6% to RM91.5m. Meanwhile, DPU declined by 14.9% to 8.40 sen post the share split (in 3Q15) adjustment which we believe is attributable to: (i) dilution from placement of 83.6m units in 4Q14, while (ii) FY14 saw higher DPU due to gains on disposal from Axis Plaza.

Outlook

Awaiting Letter of Offer (LO) for a logistics warehouse located in SiLC, Nusajaya for RM41m.

The group has accepted a LO for a warehouse facility located in Pasir Gudang, Johor for RM33m.

Dato’ Stewart LaBrooy is succeeded by Leong Kit May as the new CEO from Jan-2016. We believe Kit May is the best person for the job as she is well groomed by Dato Stewart and has been with AXREIT for over seven years.

Change to Forecasts

Our earnings and recommendation are placed under review with negative bias. Hence, we make no changes to our FY16E RNI for now, pending clarity at the results’ briefing later today.

Rating

UNDER REVIEW (Previously MARKET PERFORM)

Valuation

We are placing AXREIT “UNDER REVIEW” (previously, MP; TP: RM1.69, based on a target gross yield of 6.0%, on a +2.0ppt yield spread to our 10-year MGS target of 4.00%) at this juncture, pending the analysts’ briefing today.

Risks to Our Call

(i) Bond yield compression, (ii) Better-than-expected rental reversions, (iii) Better-than-expected occupancy rates in the office segment.

Source: Kenanga Research - 19 Jan 2016