Post-briefing,  we are  now  slightly  more positive on Axis REIT’s  future growth  prospects.  Axis  has  indicated  that  it  could  be  acquiring  two more assets by  year-end  in addition to its recent proposed injections. Thus  organic  growth  should  continue  to  be  driven  by  asset refurbishments.  We  lift  our  FV  to  MYR3.34  (from  MYR3.29),  after tweaking our FY14/15 EPU forecast up slightly by 1.3% to factor in Axis’future growth prospects. Maintain NEUTRAL.

Positive inorganic growth prospects.  During its briefing, management has  guided  for  its  proposed  acquisitions  and  placement  of  83.6m  new units to be completed in Oct 2014.  Axis  has  also  entered into  letters of offer  for  the  purchase  of  industrial  facilities  in Johor  and  Penang for  a total  consideration  of  MYR191.5m.  The  formal  sales  and  purchase agreement  (SPA)  for these assets could be signed by year-end, subject to the outcome of its ongoing due diligence. With about MYR280m to be raised  from  the issuance  of  new  units,  Axis’  gearing  will  likely  be  kept below  its  0.35x internal  gearing target  even if  it  takes on additional debt for these two  injections.  The impact of  the overnight policy rate  (OPR)hike may still be manageable going forward, given that 78% of its debt ison fixed rates.  Axis  estimates that its FY15 DPU could be enhanced by about 2.1 sen from these acquisitions.

Value  enhancement  through  refurbishments.  Axis  will  continue  to focus on its asset enhancement initiatives  (AEI)  as part of its strategy to completed  the  major  MYR23.7m  AEI  in  Axis  Business  Campus  (ABC)and is now actively looking for tenants for the asset. It is also in the midst of revamping another asset, Axis Business  Park (ABP), and this AEI is due  to  be  completed  by  year-end.  Given  the  expected  post-AEI  net yields  of  about  12-13%  for  the  assets,  we  estimate  that  the  average rental rates for both ABC and ABP could increase by about 5% in FY15.

Earnings forecasts.  We tweak slightly our  FY14/15  EPU forecasts by 1.3%  to be more  in line with  management’s guidance  and after factoring in the impact of ABC and ABP’s AEI.

Maintain  NEUTRAL.  We  raise  our  DDM-based  FV  to  MYR3.34  (from MYR3.29) after the revision in our future DPU values. Although the REIT is  fairly  valued  at  present,  we  believe  the  acquisition  of  more  yieldaccretive assets could lead to a re-rating of the stock.

Source: RHB