Axis REIT’s 2Q15 core profit came in slightly below expectations. Maintain NEUTRAL with a revised DDM-based TP of MYR3.67 (from MYR3.82, 8.9% upside). While organic growth would remain soft due to the persistently challenging market, we note that 2Q15 revenue was boosted by the maiden contribution from its Axis Shah Alam SC2 asset.Furthermore, its FY16F dividend yield remains decent, at 5.8%.

Slightly below expectations. Axis REIT registered a 2Q15 core profit of MYR23.6m (+4.2% QoQ, +13.5% YoY), which brought 1H15 core profit to MYR46.1m, slightly below our previous estimate and at 44% of FY15F core profit. Revenue came in stronger in 2Q15 (+17.8 YoY), boosted byits recently-completed acquisition of the MYR45m Axis Shah Alam DC2 asset on 31 Mar and contributions from three new assets that were acquired back in Dec 2014. However, this was offset by an increase in its property and non-property expenses that amounted to MYR35.9m for 1H15. That said, it declared a decent DPU of 4.30 sen during the quarter, to be paid out on 11 Sep.

Recent developments. We note that management is ramping up its efforts to improve on overall occupancy, especially for newly-refurbished assets such as Axis Business Park, which is still untenanted.Management also shared during our recent meeting that the REIT is looking into customising its office and industrial assets to appear more attractive to potential tenants. That said, we expect the market to remain challenging, especially for its office assets. We also expect the industrial segment to remain unexciting, due to lack of new assets entering the market and the nature of the segment’s tenancies – which are mostly on a long term basis. Although no new major 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 recent fund-raising provisions could help to accelerate and assist in the REIT’s future acquisition efforts.

Earnings forecast. We trim our FY15F-17F earnings by 2.7-4.9% after imputing the higher expenses.

Maintain NEUTRAL. We maintain our NEUTRAL call, with a revised DDM-based TP of MYR3.67 (from MYR3.82, 8.9% upside). We reiterate that more yield-accretive asset injections would be the re-rating catalyst for the REIT amidst the current challenging environment.