• Axis REIT reported a higher 2020 realised net profit of RM124.9m (+7.5% yoy) on higher rental contributions from newly acquired / commenced properties
• The results were within market and our expectations – making up 97% of the street’s and 102% of our expectations
• Maintain HOLD with an unchanged price target of RM2.01. At 5.1% 2021E distribution yield valuation looks fair

2020 Realised Net Profit Grew 7.5% Yoy, Within Expectations

Axis REIT’s 2020 realised net profit came in higher at RM124.9m, (+7.5% yoy), driven by a 4.2% growth in revenue to RM224.1m attributable to rental from its newly acquired / commenced properties. This more than offset rental loss from Axis’ Industrial Facility @ Rawang which was vacant since Jul-19 and expiry of tenancy of D8 Logistics Warehouse since end Oct-20. Pretax profit was however 33.2% lower to RM142.6m due to higher opex incurred due to the increased number of properties under management, a one-off expense to rebuild the collapse of a retaining wall at Axis Vista and Axis Technology Centre and lower revaluation surplus recorded at RM19m (vs RM101.6m in 2019). Elsewhere, financing cost was 18.3% lower yoy due to lower gearing from the equity placement exercise in 4Q19 and the lower interest rate environment. Overall, Axis REIT’s results were within market and our expectations. Management declared a 2020 DPU of 8.75 sen, 5.5% lower yoy due to the increase in share base arising from a share placement exercise in December 2019.

Sequentially, a marginal increase in 4Q20 realised net profit at RM32.1m

Axis REIT’s 4Q20 realised net profit increased by a marginal 1% qoq to RM32.1m. Revenue was marginally higher by 0.6% qoq to RM57.4m while opex was lower by 1.1% qoq due to lower maintenance cost. In tandem, a flat 2.25 sen DPU was announced.

Maintain HOLD With An Unchanged DDM-derived Target Price of RM2.01

We tweaked our 2021-2022E forecasts by 1.1-1.3% lower after incorporating the 2020 financial statements, and introduce our 2023E forecasts. We maintain our HOLD rating and DDM-derived price target of RM2.01. While we like Axis REIT for its defensive asset portfolio against the ongoing pandemic and inorganic growth strategy, we believe the positives are largely priced in. At a 5.1% 2021E distribution yield, Axis REIT’s valuation looks fair considering its relatively stable earnings outlook. Upside risk: strong earnings driven by robust demand for industrial / logistic assets; downside risks include weakerthan-expected earnings due to lower rentals / offering of rental rebates and an unexpected spikes in global bond yields.

Source: Affin Hwang Research - 21 Jan 2021