Investment Highlights

• Private placement price fixed at RM1.43

• Enhanced balance sheet to prepare for near-term projects

• Neutral on the placement as dilution is limited to 3.4%

• Maintain BUY with an unchanged TP of RM1.73

Private placement price fixed at RM1.43. Axis REIT has announced that it will be fixing the approved private placement of 125 million new units at RM1.43 per unit. This will sum up to RM178.8m, which will come in handy for the company’s future expansion plans. The issue price represents a 5.2% discount of the 5-day volume weighted average market price of RM1.51. The number of new units represents 10% of the newly enlarged number of 1,230 million units. The new units make up 11.3% of existing 1,105 million issued units.

Enhanced balance sheet to prepare for near-term projects. With the new fund, Axis REIT’s gearing could be reduced to 29.4% from 37.3% currently if all the proceeds are used to pare down debts. However, we expect that a huge part of the proceeds would be used as capital for its middle and near-term plans such as the development of the aerospace manufacturing facility for Upeca, which is estimated to cost RM73.2m. It will also allow for Axis REIT to purchase more yield accretive assets going forward.

Neutral on the placement as dilution is limited to 3.4%. We expect its core EPU to decline by 3.4% to 9.33 sen from 9.66 sen previously. Although Axis REIT’s FY18 core earnings will increase by 7.5% to RM114.7m from RM106.7m mainly due to interest savings, it is offset by the increase in share base of 11.3%.

Maintain BUY with a revised TP of RM1.66 (from RM1.73) as we take into consideration of the lower EPU and DPU forecast going forward. Our valuation method is unchanged based on the Dividend Discount Model (Required rate of return: 7.3%, perpetual growth rate: 1.2%). Dividend yield is estimated at 4.9%.

Source: MIDF Research - 13 Nov 2017