INVESTMENT HIGHLIGHTS

• Full year earnings met expectations

• FY17 core net income was flat as revenue was up marginally by 1%

• 4Q17 core net income slid 2% while income was unchanged

• Not stopping at its 40th asset

• Maintain BUY with an unchanged TP of RM1.66

Full year earnings met expectations. Axis REIT’s full year core net income of RM92.6m made up 100% of our forecast. It also came within 95% of street’s estimate. A DPU of 1.9 sen was announced, bringing total FY17 DPU to 8.3 sen, which is also in-line with our expectation.

FY17 core net income was flat as revenue was up marginally by 1%. Its core net income is largely unchanged yoy. The higher nonproperty expenses (+1.8% to RM51.02m) was offset by the slight growth in its topline. The flattish revenue growth was attributed to the divestment of Axis Eureka, which was completed on 8 March 2017. The loss of rental income from the asset was replaced by the income from Kerry Warehouse in July and later on the Wasco facility in Gebeng, Pahang that was included into Axis’ portfolio in December.

4Q17 core net income slid 2% while income was unchanged.

Compared to 4Q16, revenue was largely unchanged at RM42.4m as the disposal and acquisition of assets cancels out the rental contribution. Core net income during the period, however, was dampened by higher non-property expenses, which rose by 5.7%.

Not stopping at its 40th asset. After the completion of its 40th asset, Axis has three other ongoing acquisition deals worth a total of RM150.7m. These include i) a warehouse facility in Shah Alam, ii) a manufacturing facility in Indahpura, Johor and iii) a manufacturing facility in Senawang, Negeri Sembilan. We opine that Axis will be able to fund these acquisition targets as it had pared down its gearing to 29% from the private placement proceeds of RM178.8m. On top of that, earnings contribution from Nestle DC@ Axis Mega Distribution Centre is expected to start in 2HFY18.

Maintain BUY with unchanged TP of RM1.66 as we make no changes to our estimates. Our valuation method is unchanged based on the Dividend Discount Model (Required rate of return: 7.3%, perpetual growth rate: 1.2%). Dividend yield of 5.3% is deemed attractive.

Source: MIDF Research - 24 Jan 2018