Axis REIT’s 1QFY21 core net profit of RM31.9m (-0.8% QoQ, +6.7% YoY) were within both ours and consensus expectations. Dividend of 2.23 sen per unit was declared. YoY improvement was mainly backed by new revenue contribution from newly acquired assets. Occupancy and gearing stood at 91% and 36% respectively. We expect better FY21 driven by full year contribution from 5 acquired properties in FY20 as well as new acquired properties in the year. We increase our FY21-22 forecasts by 11-10% to reflect in newly acquired assets as well as introduce FY23 estimates. Post earnings adjustments our TP increase s to RM2.54 (from RM2.48). Our TP is based on targeted yield 4.2% on FY22 DPU.

Within expectations. 1QFY21 core net profit of RM31.9m (-0.8% QoQ, +6.7% YoY) were within both ours and consensus expectations, accounting for 24% and 23% respectively of full-year forecasts.

Dividend. Declared DPU of 2.23 sen, going ex on 5th May 2021 (1QFY20: 2.10 sen).

QoQ. Gross rental income saw only a marginal decline (-2.3%) due to the contributions from the newly acquired properties; (i) Indahpura Facility 2 & 3 (12 Jan, 26 Feb) and (ii) Beyonics I-Park Campus – Block F (3 Mar) partly cushioned the rental loss from the expiry of tenancy of D8 Logistics Warehouse since end Oct 2020. Flattish property expenses (-0.7%) led to net property income (NPI) of RM49.8m (-2.5%). Despite higher administrative expenses (+18.4%) and Islamic finance costs (+1%), core net profit remained flat at RM31.9m (-0.8%).

YoY. Top line improved 3.5% mainly driven by rental from newly acquired properties in FY20. This mitigated the rental loss from the expiry of tenancy of D8 Logistics Warehouse since end Oct 2020. Property expenses rose by 5.1% due to the increase in building maintenance expenses and cost incurred from the new properties. Net property income (NPI) followed the increment (+3.3%). While Islamic finance costs increased (+6.3%) due to additional financing facilities to fund new acquisitions, it was mitigated by lower administrative expenses (-31%), hence core net profit increased to RM31.9m (+6.7%).

Occupancy and gearing. With 57 properties and 152 tenants, portfolio occupancy remained unchanged at 91% while gearing increased to 36% (FY20: 33.1%).

Outlook. We expect a better FY21 due to full year contribution from 5 acquisitions in FY20 as well as new contribution from newly acquired properties in FY21.

Forecast. We updated our model for FY20 audited accounts, introduce in FY23 forecasts, as well as increase FY21-22 earnings by 11%-10% to reflect in contribution from newly acquired properties.

Maintain BUY, TP: RM2.54. Post earnings adjustments, our TP increases to RM2.54 (from RM2.49). Our TP is based on FY22 DPU on targeted yield of 4.2% derived from 1SD below 2-year historical average yield spread between Axis REIT and MAG10YR in view of increased popularity in industrial properties (92% of properties on industrial titles), high occupant tenancy in its diversified portfolio and also one of the few Shariah compliant REITs. Maintain BUY.

Source: Hong Leong Investment Bank Research - 22 Apr 2021