AXREIT's FY24 results and distribution were within expectations.

Core net profit rose 13% YoY due to contribution from multiple acquisitions that were completed in the year (as listed below which have been accounted for in our valuation). As we roll over our valuation base year to FY26F, we fine-tuned our FY25F earnings by +3%, uplift our TP to RM1.86 (from RM1.79). Upgrade to OUTPERFORM as value emerges following share price action.

AXREIT's FY24 core net profit met expectations, coming in at 97% of both our forecast and the consensus estimate. It declared an estimated net distribution of 2.1 sen per unit (YTD: 8.3 sen), in line with our full- year net dividend forecast of 8.7 sen.

YoY, FY24 revenue and net profit rose by 12% and 13%, respectively, mainly attributed to the completion of the following acquisitions:

- Axis Hypermarket @ Temerloh on 16 January 2024; - Axis Facility 1 @ Bukit Raja on 31 May 2024; - Axis Vista 2 on 15 July 2024; - Axis Industrial Facility @ Batu Caves on 15 July 2024; - Axis Industrial Facility @ Sendayan on 23 July 2024.

- Axis Facility 3 @ Bukit Raja on 8 October 2024 - Axis Facility 1 @ Pulau Indah on 11 October 2024 - Axis Facility 2 @ Pulau Indah on 24 November 2024 QoQ, its revenue was higher by 9%, mainly driven by contribution from newly acquired properties, new tenancies from AMDC (Phase 2). Net profit, however, declined slightly by 4% largely due to higher financing cost and a deferred taxation.

Outlook. The ongoing proposed acquisitions that have been progressively completed in FY24, will continue to support its FY25 earnings growth prospect. In FY24, AXREIT acquired more than RM500m worth of assets, which is higher than its average historical acquisition record. Having said that, given the fact that industrial assets are now experiencing yield compression due to landlords raising asset prices at a pace faster than the rate of rental reversions, we do not foresee AXREIT continue acquiring assets in FY25 as aggressive as it did in FY24.

Forecasts. We fine-tuned our FY25F earnings by +3% post model updates as we incorporate FY24 numbers. We also introduce our FY26F numbers.

Valuations. We raise our TP to RM1.86 from (RM1.79) as we roll over our valuation base year to FY26F at a net distribution of 9.8 sen against an unchanged target yield of 5.25% (derived from a 1.5% yield spread above our 10-year MGS assumption of 3.75%). 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. Upgrade to OUTPERFORM from MARKET PERFORM as value emerges following share price action.

Risks to our call include: (i) a higher-than-expected risk-free rate, and (ii) default on rental payments by tenants.

Source: Kenanga Research - 24 Jan 2025