• Maintain BUY and DDM-derived MYR2.09 TP, 12% upside and c.6% FY25F yield. Axis REIT’s 1H24 earnings were in line with expectations with a strong 20% increase in earnings mainly led by the commencement of new leases. We remain positive on the REIT’s earnings prospects as it has picked up the pace of acquisitions YTD, and maintains a healthy MYR220m in acquisition target moving forward, with a focus on Grade A logistics facilities and warehouses suitable for last-mile distribution.

• Results in line. 2Q24 core profit of MYR39.4m (-1.3% QoQ, +17.1% YoY) brought 1H24 earnings to MYR79.3m (+20% YoY). This was in line with expectations, at 49-48% of our and Street estimates. Axis REIT declared a DPU of 2.25 sen for the quarter (1H24: 4.55 sen, 1H23: 4.10 sen).

• Stable occupancy levels. The number of properties in the REIT’s portfolio has grown to 64 in 2Q24 compared to 62 the previous year, with a blended occupancy rate of 89%. The commencement of new leases in the newly acquired properties, as well as the completed construction of Axis Mega Distribution Centre (AMDC) Phase 2 in March drove the 12% higher revenue YoY. QoQ, however, earnings declined slightly by 1% due to the capitalisation of financing cost for AMDC Phase 2. The number of properties has increased to 67 following the completion three previously proposed acquisitions in July worth MYR173m. Management also guided that its portfolio occupancy should increase to 94% once the disposal of the vacant Axis Steel Centre for MYR162m is completed.

• New acquisitions to drive earnings. YTD, Axis REIT has completed acquisitions totalling MYR248m across Selangor, Pahang, and Negeri Sembilan, and is in the process of acquiring a further MYR362m worth of properties in Bukit Raja. Notably, these buildings are older, aged 33 to 40 years old. However, it is an area which the REIT is already established, and it has successfully completed major asset enhancement initiatives to revamp its buildings. Gearing should increase to 41% following these acquisitions, but the REIT will plan to undergo a placement to repay its borrowings.

• Earnings forecast. We make no changes to our earnings forecast. Our TP incorporates a 2% ESG premium, based on our in-house methodology. Downside risks for our call include non-renewal of its expiring leases, lower- than-expected rental reversions, and cancellation of proposed acquisitions.

Source: RHB Research - 24 Jul 2024