Axis REIT’s  FY13 net profit of MYR84.5m  was  in line with expectations. The total DPU of 18.5 sen translates into a decent net yield of 5.9%. The proposed  disposal  of  Axis  Plaza  could  be  an  indication  that  the company  is  preparing  for  new  acquisitions.  We  upgrade  Axis  REIT  to NEUTRAL (from SELL),  with a  revised FV of MYR2.93,  as we believe all the negative news have been priced in.

• In line. Axis REIT’s  4QFY13  core net profit  of  MYR21.5m (+3.3% y-o-y;flat  q-o-q) boosted  its  FY13  net profit  6.1%  higher  y-o-y  to MYR84.5m. The REIT announced a distribution per unit (DPU) of 4.7 sen, bringing its FY13 DPU to 18.5  sen. This translates  into  a  net yield of about 5.9%. Revenue growth continued  to be driven by: i) positive rental reversions from existing assets, and ii) incremental contributions from new assets. Axis also recorded a total revaluation gain of MYR9.9m  arising  from the revaluation of 13 assets during the quarter.
• To sell off  Axis Plaza.  In Dec 2013, Axis  proposed  to  dispose  of Axis Plaza  in Glenmarie  for  a  total consideration of MYR34.0m.  It  bought the asset  for  MYR22.5m back in Aug 2005.  We  believe that this is a good time to sell off the asset  as Axis will not be subject to any RPGT  on the gains from  disposal,  given  that it has held  the  asset  for more than five years.  The  asset  currently  contributes  only  about  2%  of  total  revenue. Axis  plans  to  distribute  about  MYR11.0m  of  the  net  gain  as  dividend, which will translate into an incremental DPU of about 2.35 sen. It is likely to  utilize  the  remaining  proceeds  to  build  up  its  war  chest  for  future acquisitions.  This  disposal  is  due  to  complete  in  2Q14.  Post-disposal, Axis’ gearing is expected to remain at about 0.32x.
• Earnings forecasts.  We pare  our FY14 forecasts  by  a  marginal  2%  on updating our FY13 numbers and accounting for the loss of income from Axis Plaza. We are also introducing our FY15 numbers.
• Upgrade  to  NEUTRAL.  We  upgrade  Axis  REIT  to  NEUTRAL  (from SELL),  with  a  revised  DDM-based  fair  value  of  MYR2.93  (from MYR3.24) after revising our earnings forecasts and rolling over our DDM valuation to FY14. We believe that the share price has factored in  all the negative news.  Note that Axis REIT’s unit price has  plunged  35% since we downgraded the stock in July 2013. 

Financial Exhibits

SWOT Analysis

Company Profile
Axis REIT is a diversified REIT, specialising in commercial and industrial properties

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Source: RHB