A safe haven with added M&A growth path
? Axis REIT is firmly on its recovery path with more aggressive M&As in FY22F.
? RM400m worth of targeted new acquisitions underpin growth angle.
? Reiterate Add with a lower TP of RM2.34; 5.2-5.9% dividend yield.
Well positioned for a post-pandemic recovery
Axis REIT is firmly on a recovery path in FY22F, anchored by overall improving operating
conditions which showed a strong base in FY21. The group’s financial performance in
FY21 bucked the trend among the more subdued M-REIT’s (office, retail and hospitality)
under coverage, with a robust +6.5% yoy increase in core net profit, driven by higher NPI
margin and +7.8% yoy growth in revenue (supported by contribution from new
acquisitions). We do not expect risk of rental rebates/assistance to continue in FY22F,
and even so, Axis REIT’s exposure to office tenants is minimal, at less than 5% of total
NLA. At end-FY21, the group has completed five acquisitions w orth a total of RM267m,
underpinning our 9.2% yoy revenue growth in FY22F. At end-FY21, total number of
assets under its portfolio stood at 58 with average occupancy rate of 96% (FY20: 91%).
Portfolio rental reversion stood at a healthy +5.6%, despite the pandemic.
A higher RM400m worth of acquisition targets
New assets for growth will be the key theme for Axis REIT in FY22F. We gathered that
the group will be more aggressive in pursuing new potential asset acquisitions and is not
too perturbed with risk of overcrowding in the industrial/warehousing space, (as other MREITs have talked about exploring new asset classes for recovery) given its first mover
advantage and strong brand presence. For FY22F, total value of acquisition target has
more-than-doubled to RM400m (9MFY21: RM187m). Indications were that asset
acquisition new sflow is likely to regain stronger momentum in 2Q22 F. We are positive
about the group’s plans to redevelop the Bukit Raja Distribution Centre 2, BRDC (as part
of the built-to-suit development), for incoming key tenant Shopee Express Malaysia.
From FY23F, it targets BRDC to emerge among the top earnings contributors.
FY22-24F dividend yield of 5.2-5.9% adds up to growth angle
We raise FY22-23F net profit by 3% but cut EPS/DPU by 9.3% as w e factor in the share
placement deal (188m new units) which was completed in Dec 21. We introduce FY24F.
We forecast +3% to +5% rental reversion p.a. and healthy occupancy rates of 92%. Our
DPU forecasts of 9sen/11sen/11sen for FY22F/23F/24F translate into attractive dividend
yields of 5.2-5.9%, which strengthen Axis REIT’s longer-term growth angle.
A safe haven amidst geopolitical impasse; retain Add with lower TP
Axis REIT is among our tw o preferred REIT sector picks; its growth and dividend angle
provides a defensive proposition amidst the broader market uncertainties over the
Russia-Ukraine geopolitical impasse. We retain our Add rating with a lower DDM-based
TP of RM2.34 (COE: 6.4%). Potential re-rating catalysts: new asset acquisitions. Key
downside risk: renewal of expiring leases in FY22F with negative rental reversions.