• Maintain BUY and DDM-derived MYR2.08 TP (20% upside), 6% yield. Axis REIT's FY24 results were in line with expectations, with double-digit earnings growth driven by the commencement of new leases following a record year in acquisitions. We continue to like the REIT as a proxy to the stable industrial property segment. It should see another year of strong earnings growth in FY25 from the full-year contributions of its completed acquisitions as well as redeveloped property, Axis Mega Distribution Centre 2 (AMDC2).
• Results in line. 4Q24 core profit of MYR42.4m (+3% QoQ, flat YoY) brought FY24 earnings to MYR163m (+11% YoY). This was in line with estimates at 100% of our and Street's forecasts. QoQ revenue grew by 9% mainly due to the contribution of newly acquired properties, new tenancies from AMDC2, and positive rental reversions, while non-property expenses grew 13% due to additional borrowing costs incurred for the acquisitions. FY24 revenue grew 12%, driven by the full-year contribution from Bukit Raja Distribution Centre 2 (completed in Aug 2023), positive rental reversions, and the completion of seven new acquisitions worth MYR719m. NPI margins grew slightly to 86.4% (FY23: 85.8%) as operating costs remained in check. The REIT recorded a DPU of 9.27 sen, a 7% increase YoY (FY23: 8.65 sen).
• Growth momentum to continue. Considering the bulk of acquisitions were completed in 2H24 (MYR645m), we expect the earnings growth momentum to continue in FY25 from the full-year earnings contribution. There is also room for more acquisitions following its private placement at end-Oct 2024, as the REIT's gearing ratio has fallen back to 33%. This provides the REIT with an estimated MYR1.7bn in debt headroom before it reaches the 50% gearing limit. Earnings growth should also be driven by AMDC2 - one of the REIT's largest properties - which is now fully occupied after a gradual ramp up in occupancy since its completion in Mar 2024 (Sep 2024 occupancy: 25%).
• Forecasts & ESG. As results were in line, we maintain our earnings forecasts, and introduce our FY27 earnings forecast of MYR214m. Our TP incorporates a 2% ESG premium, based on Axis REIT's 3.1 ESG score (above the country median of 3.0). Despite the higher share base following the large private placement, we still expect an 8% DPU growth in FY25.
• Downside risks to our call include non-renewal of the REIT's expiring leases, lower-than-expected rental reversions, and cancellation of proposed acquisitions.

Source: RHB Research - 24 Jan 2025