Axis Real Estate Investment Trust (REIT)
(April 21, RM3.60)
Maintain neutral with an unchanged target price (TP) of RM3.50: Axis REIT’s first quarter of financial year 2015 (1QFY15) core net income of RM22.8 million was within expectation, accounting for 21% of consensus estimate of RM109.5 million and 24% of our estimate of RM94.6 million.

The announced income distribution included a non-taxable distribution of 0.09 sen. For FY15, we expect its income distribution to be 16.9 sen representing a net dividend yield of 4.7%.

This was due to the increase in its share base by 19% to 547.8 million shares. Growth in its share base of 19% year-on-year (y-o-y) exceeded the growth in its core net income growth of 10% y-o-y, hence resulting in a decline in core earnings per unit by 8% y-o-y.

In 1QFY15, Axis REIT completed the acquisition of Axis Shah Alam DC2 on March 31, 2015 at RM45 million. As at end 1QFY15, the group’s asset under management (AUM) increased to 34 properties with a combined value of RM2.07 billion.

Recall that on March 3, 2015, Axis REIT announced three proposals: i) to split each of its existing units into two; ii) private placement of new shares of up to 20% of its share base; and iii) income distribution reinvestment plan.

All three corporate exercises are not inter-dependent on each other. We gather that these corporate exercises have been submitted to the authorities, and Axis REIT is waiting for their approvals.

In view of the 1QFY15 earnings which came in within our expectation, we maintain our earnings forecasts for both FY15 and FY16.

We also retain our TP of RM3.50 which is based on the unchanged dividend discount model.

We believe that the share price upside is limited for Axis REIT as we expect its FY15 net dividend to decline 5.1% y-o-y to 16.9 sen.

However, downside is supported by a decent FY15 dividend yield of 4.7%. — MIDF Amanah Research, April 21

This article first appeared in The Edge Financial Daily, on April 22, 2015.