KEY INVESTMENT HIGHLIGHTS

• Proposed to raise up to ~RM433m through private placement

• Earnings dilution cushioned by lower financing cost and future income contribution from acquisition pipeline

• Maintain NEUTRAL with an adjusted TP of RM1.75 (previously RM1.82)

Plans to raise up to ~RM433m through private placement. Axis REIT has announced that it proposed to place out up to 20% of its total issued units of up to 247.5m new units to its investors. Assuming that the units are placed out at RM1.75 per piece, Axis REIT may be able to raise up to RM433m from this exercise, out of which, RM428m is intended for paring off its debt. The exercise is scheduled to be completed by end of 2019.

Earnings dilution cushioned by lower financing cost and future income contribution from acquisition pipeline. We think that existing major shareholders are likely to take up the shares to maintain their shareholding given its stable long-term outlook. While the exercise will be earnings dilutive, this will be offset by the lower financing cost as well as earnings contribution from its asset acquisition pipeline.

Neutral on the exercise. The announcement did not come as a surprise as we had anticipated that the REIT will tap into the equity market for the funding of its acquisition pipeline that is estimated at RM135m. This also comes on the back of its gearing that has breached the 40%-level.

Maintain NEUTRAL with an adjusted TP of RM1.75 (previously RM1.82) as we factor in the impact from this exercise. Our required rate of return is maintained at 7.5%. Dividend yield for Axis is estimated at 5.1%. We like Axis for its stable recurring income but we think that the unit price is fairly valued at currently level, leaving limited unit price upside.

Source: MIDF Research - 30 Oct 2019