• Keep BUY, with a lower MYR2.14 TP from MYR2.19, 14% upside and c.5% yield. Axis REIT reported earnings that were in line with expectations, underpinned by contributions from newly acquired assets, positive rental reversion of 3.3%, and new tenancies. With an acquisition target of MYR120m, and the impending contribution from newly developed properties, we remain positive on the REIT’s outlook as a key player in the growing industrial segment.

• Results in line. Axis REIT reported 4Q22 core profit of MYR36.8m (-7.0% QoQ, - 0.3% YoY), bringing FY22 earnings to MYR157.9m (+15% YoY). At 98% and 100% of our and consensus’ full-year estimates, the results are within expectations. FY22 revenue grew 16.3% YoY, mainly due to rental contributions from four new assets acquired in the year, bringing the total number to 62 for the portfolio. Core earnings grew in line with revenue, increasing 15% YoY. A DPU of 2.33 sen was declared for the quarter, bringing the full-year DPU to 9.75 sen (FY21: 9.49 sen).

• Occupancy rates remain strong. The REIT’s blended occupancy rate stood at 95% (FY21: 96%) with 49 properties fully occupied. With 93% of its properties on industrial titles, the occupancy rate should continue to be stable, while most of the REIT’s buildings with occupancy below 90% are office buildings. 77% of leases up for expiry in 2022 were renewed at +3.3% rental reversion, and we think rental reversion will remain encouraging this year as non-renewal risk remains a non-issue.

• Gearing up for more. Axis REIT recently completed a placement for the issuance of 100m new units (6.09% of the REIT’s total issued fund size) on 4 Jan. The proceeds will be used to repay borrowings – this will bring the gearing ratio down to 32% from 36%, and provide more financial headroom for future acquisitions. Other than potential acquisitions, the ongoing asset enhancement initiative for Axis Facility 2, which will also make it green certified, is expected to be completed in 1Q23. The development for Bukit Raja Distribution Centre 2, which will be leased by Shopee Express, will commence in September, while the phase 2 development of Axis Mega Distribution Centre 2 is expected to be completed in 1Q24.

• Still BUY. We adjust our FY23F-24F earnings forecasts slightly, by -2% after factoring in the full-year results, and introduce our FY25F earnings forecast of MYR186m. Our TP includes a 4% ESG premium based on our in-house methodology. Key risks are non-renewal of its expiring leases, and negative rental reversions.

Source: RHB Research - 20 Jan 2023