• Maintain BUY, new DDM-derived MYR2.08 TP (from MYR2.11), 15% upside, c.6% FY25F yield. Axis REIT’s 3Q24 results were in line with expectations, with strong YoY earnings growth following a pickup in acquisitions. The REIT maintains a healthy MYR220m acquisition target moving forward. While its proposed placement (announced last month) to pare down its borrowings will provide significant headroom for future acquisitions, we lower our TP after factoring the dilutive impact to DPU.

• Results in line. 3Q24 core profit of MYR41.2m (+4.6% QoQ, +8.7% YoY) brought 9M24 earnings to MYR120.4m (+15.9% YoY). This was in line, at 74% of our and Street’s estimates. YTD revenue grew 10% YoY, driven by the lease commencement of the Bukit Raja Distribution Centre 2 in Aug 2023, as well as positive rental reversions and five completed acquisitions YTDSeptember. Earnings growth was also supported by minimal provisions for doubtful debts related to the vacant Axis Steel Centre. The REIT declared a DPU of 2.35 sen for the quarter (9M24: 6.90 sen, 9M23: 6.25 sen).

• New acquisitions to drive earnings. YTD, Axis REIT has completed seven acquisitions totalling MYR671m across Selangor, Pahang, and Negeri Sembilan, and is in the process of acquiring a further MYR87m worth of properties in Selangor. The disposal of the vacant Axis Steel Centre is ongoing, and is expected to be completed by the end of the year. To fund these new acquisitions, Axis REIT has proposed its largest private placement, aiming to issue up to 263m new units (15% of its issued units) to raise up to MYR455m to pare down its borrowings. This would reduce the REIT’s gearing ratio from a projected 44% at end-October to 33%, giving it more headroom for further acquisitions. The REIT’s previous placement was in Nov 2022, during which it raised MYR175m with the issuance of 100m new units (6% of its issued units).

• Earnings forecasts. We raise our FY25 and FY26 earnings forecasts by 10% after factoring in the finance cost savings from the proposed placement. However, our TP is lowered to MYR2.08 due to the dilutive impact to DPU.

• ESG. Our TP incorporates a 2% ESG premium, based on Axis REIT’s 3.1 ESG score (above the country median of 3.0).

• Downside risks to our call include non-renewal of the REIT’s expiring leases, lower-than-expected rental reversions, and cancellation of proposed acquisitions.

Source: RHB Securities Research - 29 Oct 2024