INVESTMENT HIGHLIGHTS

• Looking at RM200m worth of properties

• Handover of Aerospace Centre slated by 1QFY19

• Developing its niche as a built-to-suit partner

• Maintain NEUTRAL with an unchanged TP of RM1.62

Looking at RM200m worth of properties. We came back from Axis’ analyst briefing feeling reassured of its stable earnings going forward. Its portfolio occupancy rate of 94% and rental reversion of 5% are commendable. Management guided that its focus will still be on Grade A logistics facilities and manufacturing facilities and strategic industrial type assets. In terms of location, 55.6% of its portfolio is in Selangor followed by Johor (24.8%), Penang (8.0%) and others (11.6%). That said, they also explore opportunities in other states such as Sabah and Sarawak. More imminently, they are targeting to complete an acquisition of the Bayan Lepas facility worth RM20.5m that it has signed in August 2018 by 1HFY19. The latest total estimated value of its acquisition targets is RM200m.

Handover of Aerospace Centre at Subang slated by 1QFY19. Management has also guided that the construction of its second development project is on track and that they target to hand over the property to its tenant, Upeca, upon completion by 1QFY19. The original handover date was set on 15 December but due to request of changes in specifications, the handover is now set on 31 March 2019. However, rental contribution from the Aerospace Centre had started in December. The total development is worth RM66.7m.

Developing its niche as a built-to-suit partner. Having carved its niche in developing and managing industrial properties, Axis may continue to explore other built-to-suit projects especially upon completion of the Aerospace Centre. One of the low hanging fruits could be the development of Mega Distribution Centre Phase 2, which we expect to have an NLA similar to that of Phase 1 that was successfully handed over to Nestle in early 2018. However, nothing is firmed up at this point.

Maintain NEUTRAL with unchanged TP of RM1.62. We make no changes to our earnings assumptions and our valuation method, which is based on the Dividend Discount Model (Required rate of return: 7.5%, Perpetual growth rate: 1.0%). Dividend yield for Axis is estimated at 5.1%. While we like Axis REIT for it stable recurring income, we believe that price upside is limited for now due to recent rally.

Source: MIDF Research - 24 Jan 2019