KEY INVESTMENT HIGHLIGHTS

• Acquiring industrial asset in Shah Alam

• Neutral on the proposed acquisition

• Minimal impact on gearing

• Earnings estimates maintained

• Maintain Neutral with a revised TP of RM2.02

Acquiring industrial asset in Shah Alam. Axis REIT announced that it has entered into a sale and purchase agreement for the acquisition of an industrial asset located within Seksyen 15 Shah Alam for cash consideration of RM11.87m from Melewar Steel Services Sdn Bhd. The subject property is a parcel of industrial land built upon with a singlestorey detached warehouse building and other ancillary buildings. The proposed acquisition is expected to be completed by 1Q2021.

Neutral on the proposed acquisition. We are not surprised by the proposed acquisition as it is in line with Axis REIT’s strategy of expanding its industrial assets portfolio. Purchase consideration of RM11.87m is deemed fair as it is slightly below the property’s net book value of RM12.5m. The proposed acquisition of the property is conditional upon the vendor or Axis REIT procuring a tenant to rent the property for rental of RM70k/month which implies gross yield of 7%. Meanwhile, the property is strategically located at Seksyen 15 Shah Alam which is one of the established industrial areas in Shah Alam. Hence, Axis REIT expects the asset acquisition to benefit the company in the long-term.

Minimal impact on gearing. Axis REIT intends to fund the proposed acquisition by existing bank financing. We expect limited impact on gearing of Axis REIT as purchase consideration of RM11.87m is deemed insignificant considering total borrowings of ~RM1b. Meanwhile, earnings impact from the asset acquisition is expected to be minimal at less than 1%.

Maintain Neutral with a revised TP of RM2.02. We make no changes to our earnings forecast for FY20/21/22F pending completion of the asset acquisition. Meanwhile, we revise our TP for Axis REIT to RM2.02 from RM1.83 as we roll over our valuation. Our TP is based on Dividend Discount Model. We maintain our Neutral recommendation on Axis REIT due to limited unit price upside. Meanwhile, net distribution yield of Axis REIT is estimated at 3.8%.

Source: MIDF Research - 4 Sept 2020