KEY INVESTMENT HIGHLIGHTS

• Acquisition of industrial assets in Johor
• Neutral on the proposed acquisition
• Average gross yield of 7.5%
• Minimal earnings impact of <1%
• Earnings forecast unchanged
• Maintain Neutral with an unchanged TP of RM1.98

Acquisition of industrial assets in Johor. Axis REIT announced that it has entered into sale and purchase agreements for the acquisition of three industrial properties in Kulai, Johor from Axis AME IP Sdn Bhd for a total cash consideration of RM28.2m. The three properties are singlestorey detached factories with mezzanine offices. The proposed acquisition is expected to be completed by end of 2020.

Neutral on the proposed acquisition. We are neutral on the acquisitions of three industrial assets as the acquisitions are in line with Axis REIT’s strategy of expanding its industrial assets portfolio. First property is fully tenanted by Perodua Sales Sdn Bhd for marketing and distribution of motor vehicles and spare-parts while second property is tenanted by KES International Sdn Bhd which is a manufacturer of measuring, testing, navigating and control equipment and printed circuit boards. Meanwhile, the third property is tenanted by Beyonics Precision (Malaysia Sdn Bhd) which manufactures aluminum die casting and precision machining of metal components.

Average gross yield of 7.5%. Total purchase consideration of RM28.2m is higher than total net book value of RM15.6m which we think could be due to the good condition of the buildings as ages of the buildings are ranging from 5 months to 2 years. Meanwhile, gross yields of the three assets are ranging from 7.4% to 7.7%, giving an average gross yield of 7.5% which we deem decent. On the other hand, purchase consideration of RM28.2m will be funded by existing bank financing. Impact on gearing is limited considering total borrowings of ~RM1b as of September 2020.

Maintain Neutral with an unchanged TP of RM1.98. Earning impact from the assets acquisitions is expected to be minimal at less than 1% of FY21 earnings. Hence, we make no changes to our earnings forecasts for FY20/21/22F. We maintain our TP of RM1.98, based on Dividend Discount Model. We maintain our Neutral recommendation on Axis REIT due to limited upside. Meanwhile, net dividend yield of Axis REIT is estimated at 3.5%.

Source: MIDF Research - 20 Nov 2020