Flattish earnings outlook for Axis REIT

Axis Real Estate Investment Trust (April 26, RM1.65)

Maintain neutral with an unchanged target price (TP) of RM1.68: Axis Real Estate Investment Trust’s (Axis REIT) first quarter of financial year 2017 (1QFY17) core net income of RM23.1 million was within expectations, at 25% and 24% of our and the consensus full-year estimates respectively.

The first interim distribution per unit of 2.15 sen was declared.

Axis REIT’s 1QFY17 core net income inched up marginally by 2% year-on-year (y-o-y), mainly due to rental contributions from the Scomi facility in Rawang and a positive rental reversion of 5.8% which offset the loss of income from the Delfi warehouse (untenanted) in Pasir Gudang, Johor.

Meanwhile, the portfolio occupancy rate remained healthy at 91.86% in 1QFY17, relatively unchanged from the portfolio occupancy rate of 92.03% in the previous quarter.

For its asset acquisition plan, Axis REIT is expanding its exposure to industrial assets with three ongoing asset acquisitions, namely the Kerry warehouse in Pasir Gudang, Johor, an industrial facility in Kuantan, Pahang, and an industrial facility in Iskandar Puteri, Johor.

The ongoing asset acquisitions are expected to be completed in 2QFY17 or 3QFY17.

We estimate core net income for FY17 to be flattish mainly due to a loss of income from Axis Eureka post disposal of the unit in March 2017.

Meanwhile, we forecast FY18 earnings to grow by 8.6% y-o-y as we expect earnings contributions from the Axis PDI site following the completion of the Nestle Distribution Centre on the site.

Our TP is based on the dividend discount model (required rate of return: 7.3%; perpetual growth rate: 1.2%).

We maintain our “neutral” recommendation on Axis REIT due to its flattish earnings outlook. Meanwhile, the dividend yield is estimated at 4.6%. — MIDF Research, April 26

This article first appeared in The Edge Financial Daily, on April 27, 2017.

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