Axis REIT’s FY20 core net profit of RM124.9m (+8.5% YoY) were within our estimates and consensus. Dividend of 2.25 sen per unit was declared. The improvement was primarily supported by contribution from the newly acquired assets (+4.4% YoY), and lower Islamic finance costs (-18.3%). Occupancy and gearing stood at 91% and 33.1% respectively. Axis REIT acquisition target will remain focus on Grade A logistics and manufacturing facilities. We maintain our forecasts, reiterate BUY call with unchanged TP of RM2.49 based on targeted yield of 4.7% on FY21 DPU.

Within expectations. 4Q20 core net profit of RM32.1m (+1.0% QoQ, +9.4% YoY) brought FY20’s sum to RM124.9m (+8.5% YoY). The results were within our estimates and consensus, accounting for 101% and 98%, respectively.

Dividend. Declared 4Q DPU of 2.25 sen/unit going ex on 4 Feb; of the portion, 1.10 sen/unit can be elected to be reinvested in new units under optional income distribution reinvestment plan (IDRP). This brings FY20 DPU to 8.75 sen (FY19: 9.3 sen).

QoQ. Revenue increased marginally to RM59.8m (+1.3%) thanks to newly acquired properties; Axis Shah Alam Distribution Centre 5 (10 Nov) and Axis Industrial Facility @ Shah Alam (3 Dec). Despite lower property expenses (-1.1%), the higher Islamic finance costs (+4.6%) resulted in a marginal improvement of core net profit (+1.0%).

YoY. Top line improved 7.9% driven by newly acquired properties. Property expenses increased in line with the additional properties. While administrative expenses jumped (+11.9%), it was mitigated with a decreased of Islamic finance costs (-12.7%); hence core net profit increased to RM32.1m (+9.4%).

FY20. Revenue for FY20 of RM232.2m improved (+4.4% YoY) on the back of newly acquired properties during the year; (i) Axis Facility 2 @ Nilai (28 Feb), (ii) Axis Facility 2 @ Bukit Raja (17 Mar), (iii) D37c Logistics Warehouse (9 Jun), (iv) Axis Shah Alam Distribution Centre 5 (10 Nov) and (v) Axis Industrial Facility @ Shah Alam (3 Dec). The decrease in Islamic finance costs (-18.3% YoY) brings about higher core net profit of RM124.9m (+8.5% YoY).

Occupancy and gearing. Axis REIT has 53 properties in its portfolio; an increase of 5 properties from FY19. Occupancy reduced marginally to 91% (from FY19: 92%); while gearing increased to 33.1% (from FY19: 28.7%).

Outlook. Axis REIT’s acquisition target for FY21 is RM135m with Grade A logistics and manufacturing facilities as their prime focus. We remain positive for FY21 with expectations of full year contribution from the newly acquired properties.

Forecast. Maintain Forecast as the Results Were in Line.

Maintain BUY, TP: RM2.49. We maintain BUY with unchanged TP of RM2.49 based on FY21 DPU on targeted yield of 4.7% which is derived from 1SD below 2-year historical average yield spread between Axis REIT and 10-year MGS yield in view of increased popularity in industrial properties, high occupant tenancy in its diversified portfolio and is also one of the few Shariah compliant REITs. The stock also has shown resilient earnings throughout the pandemic.

Source: Hong Leong Investment Bank Research - 21 Jan 2021