Axis Real Estate Investment Trust
(Jan 21, RM1.79)
Maintain buy with a lower target price of RM1.97: Axis Real Estate Investment Trust (Axis REIT) reported moderate results — against a low base in the third quarter of financial year 2019 (3QFY19), Axis REIT’s realised net profit for 4QFY19 rebounded 6.3% quarter-on-quarter (q-o-q) to RM29.8 million.

To recap, Axis REIT’s 3QFY19 profitability was affected by recognising RM493,000 of provisions for bad debts, partly attributable to Scomi Engineering Bhd vacating the Axis Industrial Facility @ Rawang in July 2019. The REIT has reversed some of the bad debts provisions in 4QFY19.

Axis REIT’s realised earnings per unit (EPU), however, were lower q-o-q due to a dilution from issuing new shares — +16% to share base — in December 2019; this resulted in a lower 4QFY19 dividend per unit (DPU) of 2.20 sen.

Cumulatively, Axis REIT’s realised net profit for FY19 was higher at RM116.2 million or 8.6% year-on-year (y-o-y), driven by contributions from Nestle’s lease at the Axis Mega Distribution Centre commencing June 1, 2018 and other newly acquired assets.

The full-year DPU grew 5.9% y-o-y to 9.26 sen, translating into a 12-month trailing yield of 5.2%.

Elsewhere, Axis REIT saw a record gain of RM101.5 million from a change in the fair value of investment properties, largely due to upward revisions for its warehouses or distribution centres.

The results were broadly within market and our expectations: its realised net profit for FY19 was at 99% of the street and our full-year earnings forecasts; however, its realised EPU was 3% below our forecast due to a dilution from issuing new shares.

Our FY20 and FY21 EPU forecasts are revised by +1.1% and -4.1% respectively after incorporating financial statements for 2019; an increase in share base and cash balance after placing new shares in December 2019; and revenue and net property income (NPI) contributions from the proposed acquisitions of new assets worth RM360 million.

We have pencilled in an average NPI yield of 7%, and a deferment in starting the Axis Mega Distribution Centre 2 to 2022, from 2021, in view of a slower-than-expected progress in securing new tenants. — Affin Hwang Capital, Jan 21