Axis REIT’s 2QFY14 results came in line. A DPU of 5.30 sen wasannounced, including a special dividend of 0.90 sen from Axis Plaza’s disposal. The REIT announced the proposed acquisition of severalindustrial assets in Shah Alam for a total consideration of MYR280.5m.We nudge up our FY15 EPU by <1% after factoring in the impact of theacquisitions. We raise our FV to MYR3.29 (from MYR3.23). NEUTRAL.

In line. Axis REIT’s 2QFY14 core net profit of MYR20.8m (-6.9% q-o-q, -2.1% y-o-y) brought 1HFY14 numbers to MYR43.1m (+3.1%), in line with expectations. The REIT announced a distribution per unit (DPU) of 5.30sen (+15.2% y-o-y), including a special DPU of 0.90 sen arising from the completion of the disposal of Axis Plaza. Y-o-y revenue growth continued to be driven by positive rental reversion from existing assets.

Potential new acquisitions. Axis REIT has announced the proposed acquisition of several industrial assets in Shah Alam for a total consideration of MYR280.5m. The net yields of these assets are decent at about 7%, slightly above the REIT’s dividend yield of about 5.5-6%.The assets’ occupancy rates are at 100%, and the earliest tenancy expiry will be in FY16, thus minimising any short-term vacancy risk. We believe Axis REIT will maintain its strategy of debt-equity financing for the acquisitions. Axis had indicated that it plans to issue about 83.6m new units. Assuming the issue price of MYR3.23 per unit (a 5% discount to yesterday’s closing price), the REIT could be raising proceeds of up toMYR270m from this exercise. Given that the REIT needs to raise less than MYR20m in debt, post-acquisition gearing is likely to remain at below the 30% level. That said, we expect the acquisitions to be DPUneutral in the short term, as the increase in earnings will likely be offset by a larger unit base. The acquisitions are expected to be completed in 4QFY14.

Earnings forecast revision. We are leaving our FY14 earningsestimate intact for now. While we lift our FY15 net profit forecast by
about 20%, due to the new acquisitions, our earnings per unit (EPU)estimate is raised marginally by less than 1% after factoring in a larger unit base post-acquisition.

Maintain NEUTRAL.Our DDM-based FV is raised slightly to MYR3.29(from MYR3.23) after the revision inour future DPU values. Given Axis’track record, we believe that there will still be room for earnings upside from its new assets through extensive refurbishment exercises.

Source: RHB