INVESTMENT HIGHLIGHTS

• 9MFY17 earnings within expectation

• Earnings dipped by 1.4% yoy due to higher expenses

• Strengthening its portfolio of industrial assets

• Earnings forecast maintained

• Maintain NEUTRAL with an unchanged TP of RM1.73

9MFY17 earnings within expectation. Axis REIT’s 9MFY17 core net income of RM68.6m came in within expectations, at 74% and 71% of our and consensus full year estimates respectively. During the quarter, Axis REIT registered a revaluation gain of RM9.87m, which we have excluded from core net income. A third interim distribution per unit (DPU) of 2.0 sen was declared.

Earnings dipped by 1.4% yoy due to higher expenses. Axis REIT 3QFY17 core net income fell by 1.44%yoy to RM22.0m, primarily due to non-property expenses and financing costs that climbed by 3.9% and 2.8% respectively. Meanwhile, cumulative earnings in 9MFY17 increased marginally by 1% to RM69.0m. There was little growth compared to the previous corresponding period mainly due to the loss of income from Axia Eureka, sold in March 2017. However, the earnings contribution from Scomi Facility in Rawang and Kerry Warehouse has filled up that void.

Strengthening its portfolio of industrial assets. On top of the purchase completion of Kerry Warehouse at Pasir Gudang, Johor and the signing of SPA for the Kuantan pipe-coating facility, Axis REIT has accepted a letter of offer to buy an industrial facility at Senawang, Negeri Sembilan for RM18.5m on 20th October. We believe that Axis will continue to focus on its mainstay of industrial assets.

Earnings forecast maintained. We are keeping our earnings estimates for FY17 as results came in within expectation. We are also maintaining our FY18 earnings forecast as the development of the Nestle Distribution Centre is on track.

Maintain NEUTRAL with an unchanged TP of RM1.73. We make no changes to our assumptions and valuation method, which are based on the Dividend Discount Model (Required rate of return: 7.3%, Perpetual growth rate: 1.2%). Dividend yield is estimated at 4.7%.

Source: MIDF Research - 24 Oct 2017