INVESTMENT HIGHLIGHTS

• 1QFY19 results deemed in-line

• CNI for the quarter rose 20%yoy to RM28.9m

• RM200m of potential asset acquisition in the pipeline

• Maintain NEUTRAL with an adjusted TP of RM1.73

1QFY19 results deemed in-line. Axis REIT’s CNI of RM26.6m makes up 24% of ours and consensus’ full year estimates. DPU for the quarter is 2.35 sen, which is also within expectation.

CNI for the quarter rose 20%yoy to RM28.9m as revenue climbed 19%yoy to RM53.8m. The higher on-year CNI can be attributed to four new properties added into its portfolio. Occupancy rate for the quarter was 94% vs 93.6% a year ago. Out of its 45 properties, 34 are fully occupied while 10 of them recorded occupancy rate below 90%. Compared to 4QFY18, core net income slipped 9% as revenue declined by 10%qoq.

RM200m of potential asset acquisition in the pipeline. Among them, it targets to accomplish two acquisitions by 1HFY19. The two assets include one manufacturing facility in Bayan Lepas, Pulau Pinang and manufacturing facilities at Nusajaya, Johor. The purchase price of these two assets are RM20.5m and RM55.8m respectively. The acquisition of these two assets via borrowings may push its gearing to circa 41% and hence we think that REIT manager may carry out a placement to pare down debts. Note that the manager will be seeking approval from unitholders to issue up to 20% of its fund size during its AGM today. On top of that, the REIT manager is evaluating RM200m worth of possible acquisitions that include Grade A logistics and manufacturing facilities with long leases, well-located retail warehousing in strategic locations for last-mile distribution as well as office, business parks and industrial properties with potential for future enhancement.

Maintain NEUTRAL with revised TP of RM1.73 (from RM1.62 previously). We make no changes to our earnings assumptions as Axis’ earnings are within expectation. However, we have revised our terminal growth rate from 1.0% to 1.6% in view of Axis’ ability to generate stable earnings growth. Our required rate of return is maintained at 7.5%. All in, our Dividend Discount Model-derived TP is adjusted to RM1.73 from RM1.62. Dividend yield for Axis is estimated at 4.9%. While we like Axis for its stable recurring income, we believe that the unit price upside is limited at this juncture.

Source: MIDF Research - 30 Apr 2019