KEY INVESTMENT HIGHLIGHTS

• 9MFY20 earnings slightly below our expectation
• Higher earnings on contribution from newly acquired assets
• Earnings growth partially dragged by higher expenses
• Earnings forecast revised downwards
• Maintain Neutral with a revised TP of RM1.98

9MFY20 earnings below our expectation. Axis REIT’s 9MFY20 core net income of RM92.7m came in (within consensus but) slightly below our expectation, making up 70% of our full year estimate. The slight negative deviation could be attributed to the higher than expected property expenses. Meanwhile, an interim distribution per unit (DPU) of 2.25sen was announced, bringing cumulative DPU to 6.50sen in 9MFY20.

Earnings growth partially dragged by higher expenses. On sequential basis, 3QFY20 earnings were higher at RM32.3m (+3.7%qoq) mainly due to contribution from newly acquired asset namely D37c logistics warehouse and higher carpark income. Note that Axis REIT has given carpark waiver for its multi-tenanted buildings during the period of Movement Control Order (MCO). Meanwhile, 3QFY20 earnings were resilient on yearly basis, growing by 23.3%yoy. That brought cumulative earnings in 9MFY20 to RM92.7m (+8%yoy). The higher earnings were mainly contributed by newly acquired assets and rental contribution from Axis Facility @ Batu Kawan development project. Nevertheless, the earnings growth was partially negated by the higher property expenses (+10.8%yoy). Despite the earnings growth in 9MFY20, EPU was slightly lower at 6.4sen (-3%yoy) due to dilution of shares from placement exercise.

Earnings forecast revised downwards. We revise downwards our FY20/21/22 earnings marginally by -5%/-4.8%/-4.1% to factor in the higher property expenses. Nevertheless, we expect earnings of Axis REIT to remain stable despite Covid-19 pandemic as its tenants who are mostly in industrial industry remain operating.

Maintain Neutral with a revised TP of RM1.98. Corresponding to the downward revision in earnings, our TP (based on Dividend Discount Model) is revised to RM1.98 from RM2.02. We continue to maintain our Neutral call on Axis REIT as we see limited upside. Meanwhile, net dividend yield of Axis REIT is estimated at 3.5%.

Source: MIDF Research - 22 Oct 2020