FY20 RNI of RM125.6m came in well within our and market expectations, at 97% and 99%, respectively, while dividend of 8.75 sen is also within estimate at 98%. The Group maintained stable occupancy of 91% on the back of positive reversions despite the pandemic that has shaken most other segments. Going forward, the Group has minimal expiries of 18% of which it has locked in 32% on positive reversions. As FY21 is expected to be a recovery year, we believe its share price has been excessively beaten down (-8% YTD), warranting an upgrade to OUTPERFORM (from MP) on an unchanged TP of RM2.15.

FY20 realised net income (RNI) of RM125.6m came in within our and market expectations, at 97% and 99%, respectively. The Group also declared 4QFY20 dividend of 2.25 sen (of which 0.83 sen is taxable and 1.42 sen is non-taxable), bringing FY20 dividend to 8.75 sen which also met our FY20 estimate of 8.9 sen at 98%, implying 4.5% gross yield.

Results’ highlights. YoY-Ytd, top-line was up by 4.4% on contributions from: (i) five newly acquired properties in FY20, (ii) handover of a development (Axis Facility @ Batu Kawan to FedEx in 1QFY20), and (iii) positive reversions of 5.6% on 16% of renewals in FY20 (of which only 77% were renewed), while portfolio occupancy remained fairly stable at 91% (vs. 92% in FY19). All in, RNI was up by 9%, boosted by lower financing cost (-18%) post the share placement in 4QFY19 which was utilised to pare down borrowings, (lowering gearing to 0.32x from 0.40x pre-placement), while gearing is currently at 0.33x. Meanwhile, DPU declined by 5.5% due to dilution from the 16.6% placement. QoQ, Top- line was up by 1.3% on two new acquisitions completed in 4QFY20 (worth RM107m), while marginally higher financing cost (+4.8%) resulted in RNI being up by a marginal 0.8%.

Outlook. FY21 is expected to see minimal leases expiring at 18% of portfolio NLA, of which the Group has already secured renewals for 32% of these leases on positive low single-digit reversions, while FY22 will see 21% of leases up for expiry. In the near term, the Group is actively eyeing industrial assets worth a total of RM135m, focussing on Grade A logistics located in Selangor, Penang and Johor and will continue to target acquisitions with net yield of >6%. We expect positive low single- digit reversions going forward. Additionally, AXREIT has accepted the LOs for a manufacturing facility worth RM120m in Shah Alam, and a warehouse in Plentong Johor worth RM75m which are pending due diligence exercise prior to SPA.

Maintain FY21E RNI of RM140.5m and introduce FY22E CNP of RM142.8m which will be driven by single-digit positive reversions while occupancy is expected to improve gradually to 93-94% in FY21-22 (from 91% currently). Our FY21-22E GDPU of 9.7-9.9 sen implies gross yield of 5.0-5.1%.

Upgrade to OUTPERFORM (from MP) on an unchanged Target Price of RM2.15 on FY21E GDPU/NDPU of 9.7/8.7 sen and +1.4ppt spread (@ +0.5SD to the MGS) to a lower 10-year MGS target of 3.10%. Our applied yield spread is at the lower-end among MREITs under our coverage (of +0.5SD to +1.5SD) as we favour AXREIT for its; (i) earnings stability during this pandemic given its exposure to the resilient industrial segment, (ii) minimal lease expiries (<20% of portfolio p.a.), (iii) long-term leases during these uncertain times (WALE of 5.7 years vs. prime retail REITs’ WALE of c.2-3 years) and its (iv) low gearing of 0.33x (vs. MREITS’ gearing limit of 0.60x), well positioned to take advantage of acquisition opportunities which may emerge under the challenging market conditions. Given the positives, we believe FY21E gross yield of 5.0% is attractive vs. large cap retail/office peers of 5.4% on average.

Source: Kenanga Research - 21 Jan 2021