Axis REIT’s 1H18 within expectations
KOTA KINABALU: Axis Real Estate Investment Trust’s (REIT) performance for the first half of 2018 (1H18) has come in within expectations are its core net income (CNI) of RM50.9 million during the period under review and makes up 48.4 per cent of consensus’ full year estimates.
Year over year (y-o-y) this was a +10 per cent increase for CNI and is also a +10 per cent increase for 1H18 revenue which came in at RM92.5 million.
And quarter over quarter (q-oq), the second quarter of financial year 2018 (2QFY18) saw its CNI rising by 12 per cent to RM26.9 million while revenue increased by 5 per cent to RM47.5 million.
According to analyst MIDF Amanah Investment Bank Bhd (MIDF Research), the increase was attributed to rental proceeds from newly purchased assets, namely: Kerry Warehouse and Wasco facility at Kuantan; as well as positive rental reversions of its portfolio.
Most recently Axis completed the acquisition of the section 28, shah Alam factory for RM87 million and will be likely seeing more in the near future.
“Going forward, Axis REIT may see the addition of new assets including the Senawang factory in Negeri Sembilan that comes with a price tag of RM18.5 million and manufacturing facilities in Indahpura, Johor worth RM38.7 million in 2HFY18,” said MIDF Research.
To finance these acquisitions, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) is expecting the group to likely incur borrowings and estimates that gearing will increase from 0.33 in 2017 to 0.40 in 2018 and 0.41 in 2019. This is still within an acceptable range.
For the group’s overall outlook, Kenanga Research notes that Axis REIT will see minimal leases expiring in FY18 to 19 at 14.6 to 16.8 per cent of its porfolio’s NLA and expected that growth will be largely driven by the inclusion of Axis Mega Distribution Centre Phase 1 and its second greenfield for Upeca Technologies Sdn bhd at Subang.
While MIDF Research agrees that AIX REIT will see higher income from its new assets, they opine that it will be offset thanks to the higher borrowing costs and expenses.
All factors considered, MIDF Research is maintaining its ‘neutral’ outlook on Axis REIT with a target price (TP) of RM1.55 while Kenanga Research is maintaining its ‘Underperform’ rating with a TP of RM1.25.
Justifying its rating, Kenanga Research highlights that Axis REIT’s prospects look muted due to the lackluster outlook on the REIT sector and remains conservative on valuations as Axis REIT’s gross