KEY INVESTMENT HIGHLIGHTS

• 1HFY20 earnings within expectations

• Minimal earnings impact from Covid-19 pandemic

• Stable earnings on yearly basis

• Acquiring asset in Shah Alam for RM95m

• Earnings estimates maintained

• Maintain Neutral with an unchanged TP of RM1.83

1HFY20 earnings within expectations. Axis REIT’s 1HFY20 core net income of RM60.4m came in within expectations, making up 46% and 47% of our and consensus full year estimates respectively. Meanwhile, an interim distribution per unit (DPU) of 2.15sen was announced, bringing cumulative DPU to 4.25sen in 1HFY20.

Minimal earnings impact from Covid-19 pandemic. On sequential basis, 2QFY20 earnings were stable at RM31.1m (+6.3%qoq) amid Covid-19 pandemic as its assets are mainly industrial properties and most of its tenants are still operating during Movement Control Order (MCO). Besides, the higher sequential earnings were also driven by rental contribution from (i) Axis Facility @ Batu Kawan development project which has been handed over to Fedex, and (ii) newly acquired assets such as Axis Facility 2 @ Nilai and Axis Facility 2 @ Bukit Raja.

Stable earnings on yearly basis. On yearly basis, 2QFY20 earnings climbed 7.1%yoy to RM31.1m, bringing cumulative earnings to RM60.4m (+8.6%yoy). The improved earnings in 1HFY20 were mainly due to rental contribution from newly acquired assets and rental contribution from Axis Facility @ Batu Kawan development project. Besides, earnings growth was also partly helped by lower Islamic financing cost (-20.5%yoy) due to lower interest rate and lower borrowings. Nevertheless, higher property expenses (+10.5%yoy) has partly offset the earnings growth. Despite the earnings growth in 1HFY20, EPU of 4.2sen was lower than EPU of 4.5sen in 1HFY19 due to dilution of shares from placement exercise.

Acquiring asset in Shah Alam. Axis REIT announced that it has entered into sale and purchase agreement to acquire One Total Logistics Warehouse in Shah Alam with net lettable area of 285k square feet for RM95m. The warehouse is 100% tenanted by One Total Logistics (M) Sdn Bhd. Rental for the property is RM513.4k per month which translates into gross yield of 6.5%. The proposed acquisition is expected to be completed by end of 2020

Source: MIDF Research - 27 Aug 2020