Axis REIT - OUTPERFORM - 1Q12 within expectation

Stock Name: AXREIT
Company Name: AXIS REITS

Research House: KENANGA

Price Call: BUY

Target Price: 2.82

Period    1Q12

Actual vs. Expectations

1Q12 realized net income (RNI) of RM19.9m was withinexpectations, making up 24% each of the street's FY12E RNI of RM81.6m and our RM81.3m.  Dividends  1^st  interim GDPU of 4.3 sen (including 0.05 sen nontaxable portion), which accounts for 24% of our FY12E GDPU of 18.0 sen (6.6%yield). 

Key Results Highlights

- YoY, 1Q12 RNI rose by 23% due to new contributions fromPTP D8 @ Johor and Axis Eureka. Portfolio occupancy rates also improved to97.8% from 1Q11's 95.8%.

- QoQ, 1Q12 RNI was boosted by 18% by new acquisition incomefrom industrial warehouses in Seberang Prai and Bayan Lepas. The group also achievedpositive rental reversions (0%-4.6%) for 1.5% of the porfolio's NLA. 

Outlook   

- Expects acquisition of up to RM300m worth of properties inFY12E (inclusive of actual FY12 proposed/completed acquisitions), assuming placementof 90.8m new units (RM221m new funds) and gearing of slightly less than 0.35x.

- Asset enhancement initiatives of up c. RM27m will be spentin FY12E to carry out works in Infinite Center and Wisma Bintang. To date, the grouphas already completed its Subang Hi-Tech works to suit Fonterra, whose improvedyields have been imputed in our estimates.  

Change to Forecasts

Maintaining FY12-13E RNI of RM81.3mRM87.6m. New driversinclude the Seberang Prai and Bayan Lepas industrial warehouses as well as theproposed acquisition of industrial properties @ Nilai. 

Rating  MAINTAIN OUTPERFORM

Even at its premium valuation level (1.3x FY12E PBV) now, wereckon the stock will continue to rerate itself because of its unique value proposition(potential asset trading), which other M-REITs may not be able to offer fornow.

Valuation  

No changes to TP of RM2.82, based on GGM (8.2% required rateof return, 2.5% terminal growth, FY12E NDPU of 16.2 sen). 

Risks   

Office and industrial sector risks. Sector de-rating ifinvestors switch to higher beta developers. 

Source: Kenanga