Acquiring i-Park property
Maintain BUY
We are mildly positive on Axis’ proposed purchase of an industrial property in Johor. We estimate the purchase to be yield accretive from the 4th year of the acquisition, with an estimated 5.7%-7.2% net property yield. No changes to our earnings forecast. Maintain BUY with unchanged DDM-TP of MYR2.30.
Purchasing industrial property in Johor
Axis has proposed to acquire an industrial facility in Kawasan Perindustrian i-Park, Bandar Indahpura, Kulai, Johor for MYR16.3m, from Axis AME IP Sdn. Bhd. The property is a single-storey detached factory with an annexed double-storey office. It is solely tenanted by HQPack Sdn Bhd (10 year lease expiring in Dec 2031, with 3 years renewal option), with annual rental income ranging from MYR1.1m-1.4m during the initial 10 years term. The lessee manufactures industrial packaging for the high-end semiconductor industry. Axis expects the deal to be completed in 1H22.
Yield accretive from Y4 onwards
Assuming a 95% net property margin, we have derived net property yields of 5.7%-7.2% (based on lease term of 10 years). These are higher than our estimated WACC of 5.3% (debt:equity 40:60). No changes to our forecast, as this deal forms part of our new acquisition assumptions. As the purchase will be fully debt funded, we estimate Axis’ gross gearing will increase to 0.33x from 0.31x at end-FY21, which is including the proposed development of the Bukit Raja Distribution Centre 2, Shah Alam (BRDC 2).
Industrial assets to provide resilient income
We remain upbeat on Axis’ active acquisition strategy on industrial assets which generally entail resilient rental income and lower occupancy risks. Based on gearing limit of 0.6x (until end-FY22), we view that there is still room for more small to mid-size property purchases in the near-future – in-line with Axis’ acquisition target of MYR400m.