Axis REIT - 1H12 in line, disposal gains made

Period    1H12

Actual vs. Expectations

 1H12 realised net income (RNI) of RM39.7m was within expectations, making up 48% of the street’s FY12E RNI of RM82.8m and 47% of our RM84.3m. We will have more updates after the company’s result briefing today.  

Dividends   2Q12 GDPU of 4.40 sen (quarterly payments; 0.05 sen is non-taxable portion). Note that up to 2.20 sen of 2Q12 GDPU can be elected for IDRP. 

Key Results Highlights

 YoY, 1H12 RNI grew 25%, driven by PTP D8@Johor full contribution and new ones from the industrial properties in Seberang Prai and Bayan Lepas, which came on line in early 1Q12. 

 2Q12 RNI of RM19.8m was flat QoQ against a slight 2% QoQ growth in NPI to RM28.7m as finance cost increased 9% QoQ on the back of increased borrowings (+6% QoQ) to finance the said acquisitions. 

Outlook   AXREIT has proposed to dispose Kayangan Depot for RM23.6m, implying a net gain of 1.3sen/share, which will be fully distributed to unitholders (refer overleaf). 

Change to Forecasts

 Increased our FY12E RNI by 6% to RM89.5m, but lowered our FY13E RNI by 1% to RM95.4m, after factoring in the gain on disposal of Kayangan Depot (assumed 31/10/12) and the corresponding loss of rental income. We estimate FY12-13E GDPU* at 18.7sen-17.5sen (6.6%-6.2% yield), including gains on disposal in FY12E and impact of post- placement/new acquisitions*.

Rating  Maintain MARKET PERFORM

 Although we continue to like AXREIT for its aggressive yet nimble growth strategies, the recent share price run-up now only offers a limited total return of 8% even after the gain on disposal. We will upgrade only upon more accretions arising from new acquisitions.

However, existing shareholders should consider the upcoming placement as prices tend to be discounted, offering cheaper entry points.

Valuation    Maintaining our TP of RM2.90 (post-placement and new acquisitions) given the immaterial adjustment to FY13E, based on unchanged FY13E target net yield of 5.5%***. 

Risks   Office and industrial sector risks. Increasing yield-dilutive acquisitions. Sector de-rating if investors switch to higher beta developers.

Source: Kenanga