Axis REIT (AmResearch) buy; fair value RM2.37

• Axis REIT (Axis) posted net income of RM13mil for 2QFY10 thus taking its 1HFY10 net income to RM25mil. This is in line with ours and street’s estimates, accounting for 45% and
50% respectively.

• Axis announced DPU of 4.0sen in this quarter, or cumulatively 7.7sen for 1HFY10. On a yearly basis, earnings jumped by 20% on back of 17% increase in rental income – underpinned by new properties such as Bukit Raja, Penang and Axis Steel Centre.

• Recall that these three properties were bought early in the year and we had estimated that these properties would boost Axis’ earnings for FY10F-FY11F by 15%- 16%.

• Flipside, the group is still in the midst of completing a unit placement of up to 69 million units. This placement is a precursor to buying two more properties – an industrial property in
Kuala Langat and an office/warehouse property in Petaling Jaya – for a combined value of RM134mil.

• From our back-of-the-envelope calculations, the inclusion of these two assets would raise our net income estimates by 11% to 30% to RM63mil- RM84mil for FY10F-FY12F. These two assets would also push Axis’ AUM to a landmark RM1bil – a growth of about 3x since listing in 2005.

• We understand that Quattro West (formerly known as Nestle House) has been fully leased out. We believe average rental rates should be in the region of RM4.00psf.

• Our numbers for FY10F assumes only 75% occupancy at Quattro West but at 100% the increase in net income is marginal.

• There will be an analyst briefing later today where more information on the performance of the portfolio will be available.

• We maintain our BUY rating on Axis REIT – due to its active acquisitions of yield-accretive assets – with our fair value unchanged at RM2.37/unit.


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