AXIS REAL TRUST (REIT) ESTATE

Target Price: AXIS REIT’s second quarter of 2017’s (2Q17) core net earnings rose 2.4% year-on-year (y-oy) to RM23.3mil, bringing the first half of 2017’s (1H17) core net earnings to RM46.3mil, a 2.2% y-o-y rise.

In addition, Axis REIT declared a distribution per unit (DPU) of 2.17 sen for 2Q17 (+5.9% y-o-y), bringing 1H17 DPU to 4.3 sen (+5.4% y-o-y), in turn allowing 1H17 to fall under CIMB Research as well as market’s expectations.

Losses from Delfi Warehouse were offset by a combination of positive portfolio rental reversions resulting in 1H17 revenue rising by 1.6% y-o-y to RM84.3mil, along with additional contributions acquired in November 2016 from Scomi Facility in Rawang. 1H17 core net earnings growth was brought back to a steady pace due to lower property and non-property expenses, which collectively declined 2.2% yoy to RM37.6mil.

Axis REIT also proposed the acquisition of two plots of leasehold land totalling 126.6 acres in Gebeng, Pahang for a total cash consideration of RM155mil.

The property will be leased back to Wasco Coatings Malaysia SB on a 15-year lease, with 10% step-up in rental rates every three years, while being fully funded by debt.

CIMB Research estimated gearing to rise from 2Q17’s 0.34 times to 0.39 times post acquisition, well below the regulator’s prescribed gearing limit of 0.5 times but still above its internal gearing limit of 0.35 times. Axis REIT expected a net yield of 7% for the Gebeng asset, which CIMB Research deemed as fair.

CIMB Research made no change to its earnings for now.

It maintained its “hold” rating and dividend-discount-model based target price of RM1.72, as the stock was fairly valued at the current level.

“Though we like the REIT’s healthy appetite for continuous asset injections, we think this has been priced in,” CIMB Research said.