Axis REIT’s 1Q15 net profit came in line with expectations. Maintain NEUTRAL and a DDM-based TP of MYR3.75 (4% upside). 1Q15 revenuewas boosted by the maiden contribution from three new assets, although we note that organic growth could remain soft due to the persistently challenging market. That said, its recent fund-raising provisions should bode well for future acquisitions.

• Within expectations. Axis REIT’s 1Q15 core net profit of MYR22.5m (+16.4% QoQ, +0.9% YoY) came broadly in line, at 21% of our and consensus estimates. We expect earnings to come in stronger from 2Q15 as the REIT completed the acquisition of the MYR45m Axis Shah Alam DC2 asset on 31 Mar. Revenue grew 14% YoY, boosted by the maiden contribution from its three new acquisitions that were completed in Dec 2014. Although its bottomline was slightly impacted by some one off expenses this quarter, management declared a decent distribution per unit (DPU) of 4.10 sen. Its portfolio occupancy is still stable at 92.6%.
• Recent developments. Management is ramping up efforts to improve overall occupancy, especially for newly-refurbished assets such as Axis Business Park, which is still untenanted. That said, it acknowledges that the market remains challenging, especially for its office assets. Overall,we expect organic growth to remain soft over the short term. On the inorganic front, we note that Axis has been proactively beefing up its war chest by increasing the nominal value of its ongoing sukuk programme to MYR3.0bn (from MYR300m) and extending the programme’s tenure from 15 years to a perpetual one, effective 10 Apr. This comes on the back of a proposed future placement exercise (and a 2-for-1 unit split) announced in March. Although no new acquisition announcements have been made as yet, the REIT is currently assessing the potential of several industrial assets with a total asset value of MYR270m. As such, we believe that these fund-raising provisions could help to accelerate the REIT’s future acquisition efforts. During 1Q15, the REIT’s gearing was stable at 32.5%, ie below its internal gearing cap of 35%.
• Earnings forecast. We maintain our earnings estimates.
• Maintain NEUTRAL. Our DDM-based TP remains at MYR3.75. We reiterate that Axis REIT’s continuous efforts in beefing up its war chest is a positive indicator of more yield-accretive asset injections to be made over the near- to medium-term.