KEY INVESTMENT HIGHLIGHTS

• Earnings below expectations

• Topline growth supported by new properties

• Earnings forecasts maintained

• Rental income to underpin by stable rental outlook for industrial assets

• Maintain Neutral with unchanged TP of RM1.75

Earnings below expectations. Axis REIT’s FY19 core net income of RM110.2m came in below expectations, making up 92% and 93% of our and consensus full year estimates respectively. The negative deviation was due to the higher than expected property expenses. A final dividend of 2.20sen was announced, bringing cumulative DPS to 9.26sen in FY19 which translates into gross distribution yield of 5.2%.

Topline growth supported by new properties. Axis REIT recorded higher topline of RM216.4m in FY19 (+6%yoy), driven by rental contribution from new properties namely Axis Mega Distribution Centre, Axis Aerotech Centre @ Subang and three newly acquired properties. The rental income from the new assets had cushioned the loss of rental from Axis Industrial Facility @ Rawang as the tenant has redelivered vacant possession in July 2019. Nevertheless, core net income eased by a marginal -2%yoy in FY19 mainly due to higher property expenses and higher Islamic financing cost.

Earnings forecasts maintained. We make no changes to our earnings forecasts for FY20F and FY21F pending analyst briefing. We expect rental income of Axis REIT to be stable in FY20/21F, underpinning by stable rental outlook for industrial assets.

Maintain Neutral with unchanged TP of RM1.75. Our TP is based on Dividend Discount Model (Required rate of return: 7.5%). We maintain our Neutral recommendation on Axis REIT due to limited upside for unit price. Meanwhile, dividend yield of Axis REIT is estimated at 5.0%.

Source: MIDF Research - 21 Jan 2020