FY19 realised net income (RNI) of RM115.6m came in within our (100%) and market (98%) expectations. FY19 GDPU of 9.26 sen is also within at 102%. We increase FY20E RNI marginally (+5%) post adjusting for finalised share placement but EPS and DPS remain unchanged, and introduce FY21E RNI of RM138m. FY20 will be driven by positive reversions and potential acquisition. Maintain OP and TP of RM2.00 (with an implied FY20 yield of 4.7%).

FY19 RNI of RM115.6m came in well within our and market expectations, at 100% and 98%, respectively. The Group also declared 4QFY19 dividend of 2.20 sen which brought FY19 GDPU to 9.26 sen (based on a weighted average share base of 1,260.8m shares) which also met our expectation of 9.12 sen, implying 5.2% gross yield.

Results’ highlights. YoY, top-line was up by 6% likely on contributions from newly acquired properties, namely: (i) Upeca Aerotech Sdn Bhd (in 4QFY18), and (ii) Senawang Industrial property (in 4QFY18) and low single-digit positive portfolio reversions. As a result, RNI was up by 8% on better margin (+1.1ppt) despite higher expenditure and financing cost. QoQ, top-line was down marginally by 0.6% likely due to tenant movements during the quarter. However, RNI was up by 6% on lower expenditure (-11%) and financing cost (-3%) post paring down borrowings after the share placement

Outlook. FY20-21 is expected to see minimal leases expiring at 17-11% of portfolio’s NLA. The Group is eyeing three industrial assets totalling RM116m, one in Kota Kinabalu, and two in Shah Alam which will be financed by internal funds given that gearing is currently low at 0.29x post the placement.

Increase FY20E RNI marginally by 5% to RM135m and introduce FY21E RNI of RM138m. We increase our FY20E RNI post adjusting for the full impact of the 16% new shares placement (note that we had previously accounted for 10% placement). As such, our estimate is increased post lowering financing cost (as the placement proceeds were used to pare down borrowings), but our EPS and DPS remain unchanged after accounting for the dilution to the share base. FY21 continues to be driven by low single-digit reversions, while potential acquisitions are expected to contribute c.2% to earnings. Our FY20-21E GDPU of 9.4-9.6 sen implies gross/net yields of 5.3-5.4%/4.8-4.9%.

Maintain OUTPERFORM and Target Price of RM2.00. Our TP is unchanged based on FY20E GDPU/NDPU of 9.4 sen/8.5 sen and an unchanged +1.4ppt spread to our 10-year MGS target of 3.40%. Our applied yield spread is at the lower end among MREITs under our coverage (+1.3ppt to +3.2ppt) as we favour AXREIT for: (i) its continuous acquisitions of new industrial assets which provide long-term earnings and DPU stability given the nature of the long-term leases (WALE of 6 years vs. prime retail REITs’ WALE of c.2-3 years), and (ii) its exposure to the more resilient segments vs. other MREITs under our coverage (i.e. retail, office or hospitality). We are confident with our OP call given its bullish acquisition momentum that has continued to be DPU accretive. Furthermore, it is one of the few Shariah-compliant MREITs, making it a favourite among institutional investors. At current level, FY20E gross yield of 5.3% is below MREITs’ average of 5.7%.

Risks to our call include: (i) bond yield expansion vs. our target 10- year MGS yield, and (ii) weaker-than-expected rental income.

Source: Kenanga Research - 21 Jan 2020