FY22 core net profit of RM157.9m (up 15% YoY) is within expectations, matching exactly our estimate and just 2.5% below consensus forecast. DPU of 2.33 sen in 4QFY22 brought full-year DPU to 9.75 sen, which is also broadly in line with our estimate (of 9.6 sen). We reaffirm our MARKET PERFORM call with an unchanged TP of RM1.89 based on a target yield of 5.5% (which implies a 1.0% yield spread above our 10-year MGS assumption of 4.5%).

Results’ highlights. Full-year core net income was RM157.9m (+15% YoY), which matched our forecast spot on and only 2.5% below consensus number. Following which, DPU of 2.33 sen declared in 4QFY22 brought full-year DPU to 9.75 sen (versus our FY22 estimate of 9.6 sen).

For the whole year, revenue rose 15% to RM284.2m, lifted mainly by rental income contributions following the completion of the acquisition of four properties, namely: (i) Pasir Gudang Logistics Warehouse 2 (in March 2022), (ii) Indahpura Facility 4 (in March 2022), (iii) DW1 Logistics Warehouse (in April 2022), and (iv) Axis Industrial Facility 1 @ Meru (in early December 2022). Meanwhile, property operating expenses was up 17% to RM39.1m as net property income rose 15% to RM245.1m. This comes as portfolio efficiency ratio (calculated in terms of property expenses divided by property income) stood at 13.9 % (little changed from FY21’s 13.8%).

Overall bottomline performance was also skewed mainly by a lumpy amount arising from an increase in fair value of investment properties of RM27.8m (versus FY21’s RM67.8m). In addition, overall portfolio occupancy rate stood at 95% as of end-December 2022 (same as end September 2022).

Outlook. In FY22, AXREIT acquired three industrial assets valued at RM447.3m, comprising: (i) Indahpura Facility 4 (RM16.3m; announced in February 2022), (ii) DW1 Logistics Warehouse (RM390m; announced in April 2022), and (iii) Axis Industrial Facility 1 @ Meru (RM41m; announced in September 2022). For FY23, it is still targeting acquisition deals worth RM120m. In terms of lease expiry profile, 77.3% of 2.49m sq ft of space (representing 19.6% of total net lettable area (NLA) that were expiring in 2022) has been renewed at a positive rental reversion of 3.3%. For the year ahead, approximately 1.57m sq ft of space under management (or 12.3% of NLA) will be up for renewal.

Forecasts update. Post the results, our core net income projections stand at RM172.8m (+0.8) for FY23 and RM179.3m (new) for FY24. Correspondingly, our GDPU forecasts are set at 10.4 sen and 10.8 sen, respectively, which imply yields of 5.5% and 5.7%.

MARKET PERFORM call remains. We have kept our TP at RM1.89 based on our target yield of 5.5% (which is derived from a 1.0% yield spread above our 10-year MGS assumption of 4.5%) on FY23F GDPU. This is to reflect AXREIT’s diversified portfolio of industrial assets (spread across various asset types such as logistic warehouse, manufacturing facilities, business parks and hypermarkets), offering a steady income stream. There is no adjustment to our TP based on ESG of which it is given a 3-star rating as appraised by us.

Risks to our call include: (i) expansion / contraction in risk-free rate / bond yield, (ii) higher / lower-than-expected rental reversions, and (iii) higher / lower-than-expected occupancy rates.

Source: Kenanga Research - 20 Jan 2023