Axis REIT’s 4Q15 results came in below expectations at 88%/92% of our/consensus estimates. Our BUY call and DDM-based TP of MYR1.84(17% upside) are under review, pending a briefing later today. Webelieve the REIT still has some room for growth, and we expect it to still perform under the direction of its new CEO, who has held several Csuite positions in the REIT prior to being promoted.

Below expectations. Axis REIT’s 4Q15 core net profit of MYR21.8m (-8.2% QoQ, +12.6% YoY) brought FY15 net profit to MYR91.5m (+12.6%YoY), below our and consensus estimates at 88%/92% of the full-year numbers respectively. FY15 revenue growth of 18% YoY was mainly underpinned by the contribution from its new asset acquisitions during the year, and this has more than offset the absence of income from Axis Business Park, which remains untenanted post-refurbishments. That said, we note that higher financing and managerial expenses have led to a significant margin squeeze, with FY15 core net margin coming in at 55.9% (FY14: 58.5%). A DPU of 2.0 sen was declared for 4Q15, bringing total dividends to 8.4 sen for FY15, below our estimates. Note that FY15DPU is lower than FY14 levels due to the absence of special dividends in FY15.

Recent developments. We expect management to address its growth prospects (organic and inorganic) and vacancies in some of its assets at its briefing later today. W e believe that Axis REIT could still have some potential for inorganic growth going forward. It has announced in November the proposed acquisition of four adjoining industrial properties in i-Park Industrial Park in Kulai, Johor. Given that the acquisition will be fully-funded via debt, the acquisition could potentially be DPU-accretive upon completion. We also note that there has been a change at the helm effective 1 Jan, with Ms Leong Kit May taking over the position of CEO from Dato’ George Stewart LaBrooy. We are confident that the REIT would be in good hands under the new leadership, given that Ms Leong has been with the trust since 2006 and has risen through the ranks, having held the positions of CFO and COO previously.

Under review. We lower FY16F-17F earnings by 4% after updating our FY15 numbers. Our BUY call and DDM-based TP of MYR1.84 are under review, pending its briefing later today.