INVESTMENT HIGHLIGHTS

• 1QFY17 earnings in line

• Flat earnings growth

• Earnings forecast maintained

• Maintain NEUTRAL with an unchanged TP of RM1.68

1QFY17 earnings in line. Axis REIT 1QFY17 core net income of RM23.1m was within expectations, at 25% and 24% of our and consensus full year estimates respectively. First interim distribution per unit (DPU) of 2.15sen was declared.

Flat earnings growth. Axis REIT 1QFY17 core net income inched up marginally by 2%yoy, mainly due to rental contribution from Scomi Facility at Rawang and positive rental reversion of 5.8% which offset the loss of income from Delfi warehouse (untenanted) in Pasir Gudang Johor. Meanwhile, portfolio occupancy rate remains healthy at 91.86% as at 1QFY17, relatively unchanged from portfolio occupancy rate of 92.03% in the previous quarter. On asset acquisition plan, Axis REIT is expanding its exposure in industrial assets with three on-going asset acquisitions namely (i) Kerry Warehouse in Pasir Gudang, Johor, (ii) an industrial facility in Kuantan, Pahang, and (iii) an industrial facility in Iskandar Puteri, Johor. The on-going asset acquisitions are expected to be completed in 2Q/3Q of FY17.

Earnings forecast maintained. We maintain our earnings forecast for FY17-18. We estimate core net income for FY17 to be flattish mainly due to loss of income from Axis Eureka post disposal of Axis Eureka in March 2017. Meanwhile, we forecast FY18 earnings to grow by 8.6%yoy as we expect earnings contribution from Axis PDI site following the completion of Nestle Distribution Centre on Axis PDI site.

Maintain NEUTRAL with unchanged TP of RM1.68. Our TP is based on Dividend Discount Model (Required rate of return: 7.3%, Perpetual growth rate: 1.2%). We maintain our Neutral recommendation on Axis REIT due to its flattish earnings outlook. Meanwhile, dividend yield of Axis REIT is estimated at 4.6%

Source: MIDF Research - 26 Apr 2017