FY16 realised net income (RNI) of RM90.2m both met consensus and our expectations at 97%. FY16 GDPU of 8.25 sen is also within expectation (98%). Our earnings are UNDER REVIEW pending updates from the results briefing later today. We maintain our MARKET PERFORM call and TP of RM1.58, based on a +1.70ppt yield spread to our 10-year MGS target of 4.20%.

FY16 realised net income (RNI) of RM90.2m came in within both consensus and our expectations at 97%. Distribution-wise, an interim dividend of 2.10 sen was declared (which includes a 0.15 sen non-taxable portion), bringing FY16 GDPU to 8.25 sen which is well within our expectations, making up 98% of our FY16E GDPU of 8.43 sen.

Results Highlights. YoY-Ytd, FY16 RNI fell by 1.5%, mostly on higher financing cost (6.9%) which is likely similar to previous quarters, due to the acquisition of Beyonics i-Park Block A, B, C and D. Correspondingly, FY16 GDPU was lower at 8.25 sen (-1.8%). QoQ, RNI was up by 2.8%, mostly from slight improvements in GRI, likely from the completion of acquisition for the Scomi Facility in Rawang (15th November 2016), while EBIT margins improved by +1.5ppt on lower property operating cost.

Outlook. AXREIT is finalising the completion of the acquisition for its industrial facility located at Pasir Gudang, Johor (RM33.0m) and is likely to complete the disposal of Axis Eureka by 1Q17 which we have previously accounted for in our estimates. Meanwhile, development at Axis PDI phase 1 has already begun in Dec 2016 which we expect to accrete positively to earnings in FY18.

Earnings UNDER REVIEW pending briefing later today. We maintain FY17E earnings of RM103.2m for now, and look to introduce FY18E numbers pending further updates from the results briefing later today.

Maintain MARKET PERFORM and TP of RM1.58. Our TP is based on FY17E GDPU of 9.3 sen on +1.70ppt yield spread to our 10-year MGS target of 4.20%. We ascribed a MARKET PERFORM call as we see no convincing near-term catalysts while most foreseeable downside risks have been accounted for. Additionally, AXREIT lacks strong DPU accretive catalysts in the near term as recent acquisitions and disposals have mostly been neutral-to-mildly positive to DPU (<5%). More exciting catalysts for its DPU are needed to re-rate the stock. However, being highly institutionalized and one of the few Shariah-compliant MREITs, we believe this will help to offer some downside risk protection. Risks to our call include: (i) bond yield expansion vs. our target 10-year MGS yield, and (ii) weakening rental income.

Source: Kenanga Research - 19 Jan 2017