Axis Real Estate Investment Trust
(April 30, RM1.77)
Maintain buy with an unchanged target price of RM1.94: We believe Axis REIT’s below-sector average dividend yield is justifiable, as it is one of the few syariah-compliant REITs listed in Malaysia.

Earnings should continue to grow this year, driven by income from newly acquired assets and new contributions from greenfield developments.

First quarter of financial year 2019 (1QFY19) core net profit of RM28.9 million is in line with our and street estimates. Revenue increased 19.3% year-on-yeat (y-o-y), due to higher contributions from existing and new assets, that is Axis Mega DC and Axis Aerotech Centre.

In line with the revenue growth, core net profit grew 21.8% y-o-y. A 2.35 sen distribution per unit was declared, 21% higher than in the corresponding quarter last year.

Currently, the REIT has 45 assets. The latest includes a property located at Senawang, Negeri Sembilan, that it acquired from Gandour (Malaysia) SB and two industrial facilities at i-PARK Iskandar Malaysia.

We expect the REIT to acquire two to three more assets this year. Having said that, we do not expect the acquisition to be very sizeable, as its current gearing has already reached 38%.

About 21% of its total net lettable area is up for renewal this year, slightly higher than FY18’s 18%. We believe the non-renewal risk is lower, as 19% of this renewal comprises office industrial, warehouse logistics and manufacturing facilities.

We believe the risk of non-renewals of this single-tenanted asset may be mitigated due to the existing fixed facilities in place.

The REIT has issued sukuk of RM240 million in nominal value early this year. Proceeds from the sukuk issue will mainly be used to refinance the existing financing facilities. As such, the weighted average debt maturity of the REIT will improve to 3.09 years from 1.72 years, which reduces its exposure to short-term financing to 53% from 76%.

The effective profit rate of the REIT portfolio on financing is 4.45% per annum, following the completion of the sukuk issuance.

These changes have minimal impact on our forecasts, as we imputed slightly higher interest rates for this year. — RHB Research, April 30