• Maintain BUY and MYR2.32 TP, 24% upside and c.5% yield. Earnings were within expectations, thanks to contributions from newly-acquired assets and positive rental reversions. Axis REIT is our preferred pick for the sector as a key player in the industrial segment, leveraging on the e- commerce boom. With a MYR120m acquisition target value, it remains on track for stable earnings growth, making it a robust defensive play going forward.

• 1Q22 earnings within expectations. Core profit of MYR38.8m for the quarter was in line with expectations at c.25% and c.26% of our and consensus full year estimates. 1Q22 revenue increased by 16% YoY to MYR66.7m due to contributions from new acquisitions and positive rental reversions (the latest completed acquisition was the Indahpura Facility 4 in Johor, finalised in early March). In tandem with the increase in revenue, core profit was up 20.5% YoY to MYR38.8m. A DPU of 2.42 sen was declared for the quarter (vs 2.23 sen in 1Q21).

• Strong occupancy rates. The REIT’s blended occupancy rate remains stable at 96%, considering the single-tenanted nature of industrial assets. (making up 93% of its portfolio). Out of c.22% of total NLA due for renewal this year, 54% has been renewed to date. Recall that leases up for expiry in FY21 were renewed at a +5.6% reversion rate. We believe rental reversion rate this year will be just as attractive this year owing to the encouraging demand for warehouse and logistics assets in light of the e- commerce boom.

• Growing faster than ever. Axis REIT recently announced that it is acquiring a logistics facility for MYR390m, making it the REIT’s biggest acquisition to date. There are no signs of slowing down, with a current acquisition target of MYR120m, showing the strong outlook for the industrial segment. The REIT will continue to target grade A logistics and manufacturing facilities, as well as well-located warehousing for last-mile distribution. We believe the acquisition target is manageable with ample debt headroom before breaching the 60% gearing limit, as gearing only stood at 30% as at 1Q22.

• Maintain BUY, earnings forecasts and TP unchanged. As results were in line with expectations, we leave our earnings forecast unchanged. Our TP incorporates a 4% ESG premium after taking into account Axis REIT’s excellent governance score and commendable efforts in reducing greenhouse gas emissions.

Source: RHB Research - 21 Apr 2022