This article first appeared in The Edge Financial Daily on January 24, 2019
Axis Real Estate Investment Trust
(Jan 23, RM1.70)
Upgrade to buy with a higher target price (TP) of RM1.90: Axis Real Estate Investment Trust (REIT) reported a strong set of results — financial year 2018 (FY18) realised net profit grew by 25% year-on-year (y-o-y) to RM113.4 million on the back of higher revenue (+21.4% yoy), driven by maiden rental/full-year contributions from six newly acquired assets, lease commencements of Damco Logistics ( Feb 1, 2018) and Nestle DC (June 1, 2018), as well as improving occupancy at its office buildings. Axis REIT’s FY18 realised earnings per unit grew by a lower 13% y-o-y due to an increase in its share base (+11.5%). Overall, the results are above market and our expectations — Axis REIT’s FY18 realised net profit beat consensus and our forecast by 8% and 7% respectively on higher revenue and firmer profit margins.
Sequentially, Axis REIT’s 4QFY18 realised net profit grew by 23% to RM36 million, driven by maiden/full quarterly rental contributions from newly acquired assets (for example, Beyonics i-Park Campus Block E, Senawang Industrial Facility) and commencement of Axis Aerotech Centre @ Subang in December 2018. Boosted by RM35.2 million fair value gain, the REIT’s 4QFY18 headline net profit grew by 125% quarter-on-quarter (q-o-q) to RM67 million. Elsewhere, Axis REIT’s 4QFY18 distribution per unit (DPU) of 2.45 sen (+26% y-o-y) is its highest quarterly payout since 3QFY14.
We raise our FY19 estimate (FY19E) and FY20E earnings forecast by 7% and 8% after incorporating the earnings contributions from new assets, higher profit margin and higher office occupancy rates. Elsewhere, we have lowered our equity risk premium to 8.2% (from 8.8%) in view of: i) Axis REIT’s improving earnings visibility after the completion of constructions at Nestle DC and Axis Aerotech Centre; ii) our expectations of a stable overnight policy rate; and iii) higher investor appetite for syariah-compliant Malaysian REITs. At 6% FY19E, Axis REIT’s valuation is below historical average, looks fair. Key downside risk is weaker-than-expected earnings due to lower occupancy rate/higher doubtful debts. — Affin Hwang Capital Research, Jan 23