KEY INVESTMENT HIGHLIGHTS

• Earnings missed expectations

• 9MFY19 CNI improved by 1% to RM81.8m while revenue jumped by 12%

• Earnings for FY19F/FY20F adjusted by -1.6% and -1.5%

• Maintain NEUTRAL with an adjusted TP of RM1.82 (previously RM1.84)
   

Earnings missed expectations. Axis REIT’s cumulative results for its first nine months missed estimates at 67% of our full year forecast and 68% of consensus’. An interim dividend of 2.35 sen was announced, bringing year-to-date DPS to 7.06 sen. The negative deviation during the quarter can be attributed to higher than expected property and nonproperty expenses.

9MFY19 CNI improved by 1% to RM81.8m while revenue jumped by 12%. The increase in revenue on-year can be attributed to the addition of new properties during the period that include Axis Mega Distribution Centre, which started rental contribution on 1 June 2018, Axis Aerotech Centre @ Subang that started on 16 December 2018 and three newly acquired properties since end of 3QFY18. Year-to-date, a rental reversion of 3% has been recognized, which offset the loss of rental from Axis Industrial Facility @ Rawang as the tenant has redelivered vacant possession in July 2019. Despite the increase in revenue, CNI rose only marginally by 1% due to property expenses that was up by 8.1% to RM22.6m, non-property expenses that added 5.2% to RM16.9m and Islamic financing cost that jumped 9.9% to RM36.6m.

3QFY19 earnings fell 12%yoy to RMRM26.2m despite a 3% addition in revenue. The lower earnings on-year can be attributed to non-property expenses that increased by 10.8% as well as other property expenses that increased by 19.4% to RM6.5m. Sequentially, revenue declined by 1%qoq partially due to the loss of rental income from Axis Industrial Facility @ Rawang while CNI dropped by 10% from 2QFY19.

Earnings for FY19F/FY20F adjusted by -1.6% and -1.5% to RM120m and RM129m respectively in view of the lower than expected cumulative CNI. We now assume higher property expenses.

Maintain NEUTRAL with revised TP of RM1.82 (from RM1.84). Our adjusted TP is in line with the revision to our earnings estimates. Our required rate of return is maintained at 7.5%. Dividend yield for Axis is estimated at 5.1%. While we like Axis for its stable recurring income, we believe that the unit price upside is limited at this juncture

Source: MIDF Research - 22 Oct 2019