Axis yesterday announced the proposed acquisition of an industrial asset in Port Klang, Selangor. Maintain NEUTRAL with our DDM-based TP raised to MYR3.82 (9% upside) post-earnings revision. We view the acquisition positively as it may help further drive earnings growth. Axis aims to complete the injection in a month. We lift our FY16-17 earnings estimates by 1.4% after imputing contributions from this acquisition.

A yield-accretive acquisition. Axis REIT (Axis) announced the proposed acquisition and leaseback of an industrial facility built on seven parcels of leasehold land located at Port Klang, Selangor, for a lump-sum cash consideration of MYR46m. The gross yield of the asset is decent at 8.78%. The asset will be funded entirely through cash. The REIT is expected to ink the deal in one month. Based on the announcement, the tenant will be signing a 15-year lease with a rent step-up of 8% in the first 3-year renewal term and 10% for every three years thereafter.

Positive prospects. Axis had previously guided that it is constantly on the lookout for quality and yield-accretive assets to include in its portfolio. We believe this acquisition could help mitigate the impact from the departure of several tenants late last year and earlier this year from its office assets. We are also positive on the 100% occupancy rate of the asset, which is insulated from the current property market slowdown as it is on a long-term lease.

Earnings forecasts. We do not expect any major impact on our FY15 earnings forecast. However, we lift our FY16-FY17 earnings estimates by about 1.4% after imputing contribution from this acquisition.

Maintain NEUTRAL. We remain NEUTRAL on Axis, but raise our DDM-based TP to MYR3.82 (from MYR3.75) post-earnings revision. We are positive on its asset injections in recent months and believe more yield-accretive acquisitions could be a potential re-rating catalyst for the REIT.

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Axis REIT is a diversified REIT specialising in commercial and industrial properties.

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Source: RHB Research - 23 Jun 2015