INVESTMENT HIGHLIGHTS

• Signing SPA to buy Senawang factory for RM18.5m

• Expect yield of 7.7% before financing cost

• Neutral on the acquisition

• Maintain NEUTRAL with an unchanged TP of RM1.55

Signing SPA to buy Senawang factory for RM18.5m. Axis has entered into an agreement to purchase a factory in Senawang, Negeri Sembilan for RM18.5m. The property consists of a 3-storey office annexed with a 1.5-storey warehouse factory on freehold land. The land area is about 183,432 sq ft while the net lettable area is 147,990 sq ft. The tenant of the asset is Nippon Wiper Blade (M) Sdn Bhd, whom will lease the asset up till 2026.

Expect yield of 7.7% before financing cost. The current annual rental is RM1.56m and will be raised to RM1.74m per year starting July 2021. On the other hand, its gearing is expected to increase to an estimated 38.8% from 38.1% as Axis intends to fund the acquisition through borrowings.

Neutral on the acquisition. We are neutral on the acquisition as the income contribution to Axis for FY18 is minimal. The deal is expected to be completed by end of 2018. Earnings impact as a result of this purchase in FY19 is estimated at 0.8%.

Maintain NEUTRAL with an unchanged TP of RM1.55 as we make no changes to our full year estimates while we keep our valuation method, which is based on the Dividend Discount Model (Required rate of return: 7.5%, Perpetual growth rate: 1.0%), unchanged. Dividend yield for Axis is estimated at 5.4%. We are neutral on the Axis at this point as we expect higher borrowing cost and expenses to partly offset the potentially higher income from the new assets.

Source: MIDF Research - 9 Aug 2018