Axis  REIT  recorded  a  1HFY13  net  profit  of  MYR41.8m,  up  2.8%  y-o-y.  Revenue growth was driven by positive rental reversions from existing assets  and  incremental  contributions  from  new  ones.  Nonetheless, given  the  limited  inorganic  growth  prospects  and  the  higher  yield environment, we believe  that  there will  be  limited  upside  to  unit  prices going into 2HFY13. Maintain SELL, with an unchanged MYR3.24 FV.  

- Within expectations. Axis REIT’s 2QFY13 core net profit of MYR21.2m (+6.2% y-o-y, +3.2% q-o-q) boosted 1HFY13 net profit to MYR41.8m, up 2.8% y-o-y. This was broadly in line with our and market estimates. The REIT also announced a dividend of 4.6 sen during the quarter. 1HFY13 DPU  amounted  to  9.1  sen.  Based on yesterday’s closing price, this translates into a net yield of about 4.9% (annualised).

- Limited  short-term  growth  opportunities.  Axis  REIT’s  1HFY13 revenue  grew  8.2%  y-o-y,  driven  by:  i)  the  kick-in  of  positive  rental reversions  from  its  existing  assets,  and  ii)  contributions  from  its  new assets.  Nonetheless,  the  higher  interest  expense  in  1HFY13  led  to  a flattish  2.8%  y-o-y  net  profit  growth.  With  limited  inorganic  growth prospects  for  this  year,  we  believe  that  there  will  be  limited  upside  to earnings  and  dividends  going  into  2HFY13.  We  note  that  the REIT’s gearing  has  fallen  slightly  to  32.6%  in  2QFY13  from  1QFY13’s 33.9%. Axis  REIT  also  revalued  10  of  its  assets  in  2QFY13,  resulting  in  a positive asset revaluation of MYR2.7m for the quarter.  

- Risks.  Main  risk  to  our  SELL  call  is  a  fall  in  bond  yields,  which  will increase the attractiveness of its dividend yield.  

- Maintain  SELL.  No  changes  to  forecasts  and  recommendations, pending  a  briefing  later  today.  Since  our  sector  downgrade  on  12  July, Axis REIT’s unit price has fallen by 10%. We maintain our SELL call and our MYR3.24 FV for now. We reiterate that the trend of rising bond yields is negative to the REIT sector.

Source: RHB