1HFY22 RNI of RM81.5m came in within our and market expectations at 53.7% and 53.4% of our full-year forecast and full-year consensus estimates respectively, while 1HFY22 dividend of 4.97 sen is also within at 53.6% of full-year forecasts. We continue to like AXREIT as its rental reversion outlook remains strong within the positive single-digit range on healthy occupancy of 96%, active acquisition trail, while downside risks are limited on low lease expiries (20-11% p.a. in FY22-23). We make no changes to earnings estimates. Maintain MARKET PERFORM and TP to RM1.95 on a 10-year MGS target to 4.5%. There is no adjustment to our TP based on ESG given a 3-star ESG rating as appraised by us.

1HFY22 realised net income (RNI) of RM81.5m came in within our and market expectations, at 53.7% and 53.4% of our full-year forecast and full-year consensus estimates respectively. It also declared dividend of 2.55 sen during the quarter, bringing 1HFY22 dividend to 4.97 sen which was also within our expectation at 53.6% of our full-year forecast.

Results’ highlights. YoY, top-line was up by 17% on rentals from four newly acquired properties, commencement of new tenancies at Axis Industrial Facility @ Rawang and D8 Logistics Warehouse and on the back of positive rental reversions. As a result, bottom-line increased by 29.3% despite higher financing cost (+7.3%) in tandem with higher borrowings for new acquisitions. QoQ, top-line was up by 8.9% on positive reversions and completion of one property in April 2022. All in, CNP was up by 10.2% on slightly lower expenditure (-7.1%). Group gearing increased to 0.36x (from 0.29x) post the recent acquisition of DW1 Logistics Warehouse in Johor.

Outlook. FY22-23 is expected to see minimal leases expiring at 20-11% of portfolio NLA. AXREIT is continuously eyeing more industrial developments, The Bukit Raja Distribution Centre 2 lease with Shopee Express Malaysia Sdn Bhd (development value of approximately RM250m) should commence by August 2023 while the Group is eyeing to complete the acquisition of a logistics warehouse in Klang for RM41m by 2H 2022. The Group is eyeing an additional RM120m worth of industrial assets acquisitions, focusing on Grade A logistics located in Selangor, Penang and Johor and will continue to target acquisitions with net yield of c.6.5-7.0%.

Maintain FY22-23E RNI of RM152-167m. Our FY22-23E GDPU of 9.3- 10.2 sen imply gross yield of 4.9-5.4%.

Maintain MARKET PERFORM and Target Price of RM1.95. Our TP is based on FY23E GDPU/NDPU of 10.2/9.2 sen on a 10-year MGS target of 4.5% in line with our in-house forward estimates. We continue to like AXREIT’s and have awarded it the thinnest spread under our coverage of 0.8ppt (vs. peers of +1.0ppt to +4.2ppt) due to its: (i) extremely stable earnings profile during this pandemic from exposure to the resilient industrial segment, (ii) minimal lease expiries (20-11% of portfolio p.a.) in FY22-23, (iii) long-term leases during these uncertain times (WALE of 5.7 years vs. prime retail REITs’ WALE of c.2-3 years), (iv) active acquisition trail allowing for strong YoY growth of 10% p.a. vs. organic growth of 2-3% p.a. and (v) low gearing position of 0.36x (vs. MREITS’ gearing limit of 0.60x) enabling it to take advantage of potential acquisition opportunities under the challenging market conditions. There is no adjustment to our TP based on ESG given a 3-star ESG rating as appraised by us (refer overleaf for ESG rating).

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 Jul 2022