MIDF Research downgrades Axis REIT to ‘neutral’ as near-term prospects priced in

KUCHING: The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) has downgraded Axis Real Estate Investment Trust (AxisREIT) from to neutral as the stock has had its near-term prospects priced in following its circa 20 per cent share price increase since April.

The share price rally for AxisREIT began when the group announced in April that it would acquiring a warehouse and manufacturing facility alongside 10.1 acres of land in Shah Alam Section 28 for a total cash consideration of RM87 million.

The net lettable area of the building on the land totals 254,233 sq ft and is currently being used for ware and assembly of electrical goods, while 22,449 sq ft of the land area is current being used as a car park.

With Axis REIT announcing in a bursa filing on Monday that the acquisition has been completed, it is understood that the property will then be leased back to Teraju Sinar Sdn Bhd for six years with an arrangement of an advance payment to be held through the stakeholder’s account.

Rental will be increased by 10 per cent from the fourth year.

According to MIDF Research, the asset is expected to contribute about RM3.2 million to the group’s FY18F revenue and RM6.3 million to its FY19F revenue from the lease back.

“Core earnings are estimated to increase to RM112 and RM 123million for FY18 and FY19 respectively,” guided the research arm.

While the 87 million acquisition which was funded entirely through debt has left Axis REIT’s full-year gearing at 38 per cent, the research arm notes that this is still below the 50 per cent requirement and allows the RIET with more room for future acquisitions.

Looking forward, MIDF Research believes that there might be other potential acquisitions in the pipeline such as the Senawang factory in Negeri Sembilan at RM18.5 million and the manufacturing facilities in Indahpura, Johor at RM38.7 million.

All in all, MIDF Research is downgrading its buy call on AxisREIT to neutral in light of its priced in share price and adjusts its new target price to RM1.55 following their earnings estimates increase.