AXREIT’s 1HFY24 results and distribution were within expectations. Its 1HFY24 core net profit rose 20% YoY due to maiden contribution from Bukit Raja Distribution Centre 2 and positive rental reversion. On an improved industrial rental outlook in Johor, we raise our FY25F earnings forecast by 4%, lift our TP by 6% to RM1.82 (from RM1.72) but maintain our MARKET PERFORM call.

AXREIT’s 1HFY24 core net profit of RM79.6m met expectations, coming in at 48% of both our full-year forecast and the full-year consensus estimate. It declared an estimated net distribution of 2.03 sen per unit (YTD: 4.13 sen), on track to meet our full-year net dividend forecast of 8.7 sen.

YoY, its revenue rose 10% mainly attributed to new rental stream from Bukit Raja Distribution Centre 2 from Aug 2023, further boosted by positive rental reversion. Its core net profit rose by a sharper 20% as it managed to contain its expenses.

QoQ, its 1QFY24 topline inched up 2%, mainly contributed by the acquisition of Axis Facility 1 at Bukit Raja in May 2024. However, its core net profit eased 1% on lower non-operating income.

Outlook. We now project positive rental reversion at 15% (vs. 5% we assumed previously) for its industrial assets in Johor, in-line with the recent rise in industrial property prices in Johor, driven by investments especially in the data centre space. About 35% of AXREIT’s assets are located in Johor. Meanwhile, AXREIT continues to be actively scouting for high-yielding industrial assets. It recently bagged Amsteel Mills industrial complex in Bukit Raja, Klang for RM313m, which will add RM23m rental income from FY25.

Forecasts. We raise our FY25F earnings forecast by 4% to reflect a more robust outlook for industrial properties in Johor as mentioned.

Valuations. Correspondingly, we lift our TP by 6% to RM1.82 (previously RM1.72) based on a FY25F net distribution of 10 sen against a target yield of 5.5% (derived from a 1.5% yield spread above our 10-year MGS assumption of 4.0%). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Investment case. We continue to like AXREIT as a proxy to industrial assets on the growing SME sector and the sustained inflows of foreign direct investment to Malaysia. Maintain MARKET PERFORM.

Risks to our call include: (i) a sustained elevated risk-free rate, (ii) over-supply of industrial assets resulting in depressed rental and occupancy rates, and (iii) default on rental payments by tenants.

Source: Kenanga Research - 24 Jul 2024