Axis REIT - FY12 within expectations

Period    4Q12

Actual vs. Expectations    FY12 realised net income (RNI) of RM79.7m came in within the consensus but below our expectations, making up 95% of the consensus’ FY12E RNI of RM83.5m but just 89% of ours. 

 The results came in lower than our expectations because we had assumed higher disposal gains and a lower interest expense as we had expected a placement of RM239.6m to take place by 4Q12. 

Dividends   A 4Q12 GDPS of 5.60 sen was declared, which included a 1.50 sen non-taxable portion based on c.100% payout. That implies a FY12 GDPU of 18.60 sen, marginally below our estimate of 18.71 sen.

Key Results Highlights     YoY, the FY12 RNI rose 23% on the back of full/new contributions from Axis Eureka and the industrial properties in Seberang Prai and Bayan Lepas (in early 1Q12) as well as the recently acquired Wisma Academy/Annex. 

 QoQ, the 4Q12 RNI was 24% higher at RM20.8m. Netting out RM1.0m gain from the disposal of Kayangan Depot, the RNI grew by 18%. 

 The disposal of Kayangan Depot contributed 1.30 sen in extra dividends after including the realisation of a fair value gain of RM4.9m.

 Gearing increased to 35% from 24% a year ago after Axis financed the acquisition of five properties worth RM219m cumulatively.

Outlook   We expect a placement of 90.76m new units to take place soon pending the unitholders approval. More details on this should be available in today’s upcoming analyst briefing. 

Change to Forecasts    Maintaining our FY13E GDPU of 17.5 sen, implying a yield of 5.6%, which has been adjusted for the timing of its placements pending today’s briefing.

Valuation   We have upgraded our target price from RM3.02 to RM3.18 based on a targeted gross dividend yield of 5.5% vs. 5.7% previously. We have lowered our 10-yr MGS assumption to 3.1% from 3.3% on heightened GE risks and the global economic headwinds but maintain a spread of 2.4%, implying a targeted FY13E gross yield of 5.5%.

Rating  Maintain MARKET PERFORM

 Although we have raised our TP, AXRB is not an OUTPERFORM as we noticed that its last four asset acquisitions had been lower than the overall NPI yields, indicating a more aggressive cap rate and making it tougher for the company to acquire assets in line with the current NPI yields of 9.6%.

Risks   Office and industrial sector risks, including yielddilutive acquisitions and a sector de-rating if investors switch to higher beta developers. The upside risk to our call is further compressions in the 10-year MGS beyond our expected FY13E 3.1%.

Source: Kenanga