Axis REIT’s (AXREIT) 3QFY20 realised net profit came in at RM32.1m (+12.9% YoY, +9.5% QoQ) which was within our and consensus expectations. YTD, Group realized net profit of RM93.2m (+7.9% YoY) constituted c.75% and c.72% of our and consensus full year estimates. So far, the Group has completed the acquisition of Axis Facility 2 @ Nilai, Axis Facility 2 @ Bukit Raja for and D37c Logistics Warehouse for RM50m, RM37m and RM65m respectively. In 3QFY20 alone, it has successfully signed the sale & purchase agreement to acquire a warehouse facility for RM95m and a warehouse facility for RM11.87m. Both properties are located in Shah Alam. Separately, it also proposed to acquire three units of 1 ½ storey detached factories for RM28.2m, located in Kawasan Perindustrian i-Park in Johor. Our earnings estimates are kept unchanged. Maintain our Neutral call and DDM-derived TP to RM1.91. Key catalyst for the Group is Phase 2 of the Axis Mega Distribution Center.

• Realised net income rose 12.9% YoY mainly due to the commencement of lease on Axis Facility @ Batu Kawan on 1 March 2020 and rental from newly acquired properties completed since end of 3Q2019. This has offset the rental loss from Axis Industrial Facility @ Rawang as the tenant has redelivered vacant possession in July 2019. During the Movement Control Order (MCO), AXREIT has given waivers on seasonal carpark rental for all its multi-tenanted buildings. In addition, the amount of visitor parking income has registered a drop in 2Q2020 due to MCO. Meanwhile, property expenses were higher mainly due to the enlarged size of the portfolio and also building maintenance expenses which was caused by the collapse of a retaining wall along Sungai Penchala that damaged the driveway at Axis Vista and Axis Technology Center which costing RM840k to repair.

• Targeting RM195m worth of properties. We believe that Axis REIT has benefitted from the pandemic by way of increase of demand for warehousing space as e-commerce took off during this period. We also believe that that AXREIT could see its portfolio to expand further from 51 assets currently. Total assets under management is currently RM3.3bn with financing ratio at 32%.

Source: PublicInvest Research - 22 Oct 2020