MIDF Research maintained its neutral call for Axis Real Estate Investment Trust (REIT) with a revised target price of RM2.02 from its previous RM1.83, based on the dividend discount model.
In its second quarter ended June 30, 2020 (2Q20), Axis REIT’s net earnings increased to RM31.1 mil from RM29 mil in 2Q19.
Its 2Q20 revenue also had a slight increase to RM55.4 mil from 2Q19’s RM54.1 mil.
“We maintain our neutral recommendation on Axis REIT due to limited unit price upside,” MIDF Research analyst Jessica Low Jze Tieng said in a Sept 4, 2020 note. “Meanwhile, net distribution yield of Axis REIT is estimated at 3.8%.”
Axis REIT announced that it has entered into a sale and purchase agreement for the acquisition of an industrial asset located within Seksyen 15, Shah Alam.
It was proposed for a cash consideration of RM11.87 mil from Melewar Steel Services Sdn Bhd and the acquisition is expected to be completed by 1Q21.
The property is a parcel of industrial land built upon with a single-storey detached warehouse building and other ancillary buildings, which Axis REIT believes will benefit the company in the long-term.
“We are not surprised by the proposed acquisition as it is in line with Axis REIT’s strategy of expanding its industrial assets portfolio. The purchase consideration of RM11.87 mil is deemed fair as it is slightly below the property’s net book value of RM12.5 mil,” Low said.
However, she pointed out that the proposed acquisition of the property comes with a condition, which is for Axis REIT to procure a tenant to rent the property at RM70,000 per month, implying a gross yield of 7%.
Additionally, Axis REIT intends to fund the proposed acquisition by existing bank financing, while earnings impact from the asset acquisition is expected to be minimal at less than 1%.
There will also be no changes to Axis REIT’s earnings forecast for FY20 (RM231 mil), FY21 (RM237 mil) and FY22 (RM244 mil), pending completion of the asset acquisition.
As of 2.21pm today, Axis REIT’s share price increased 0.47% to RM2.15 with a market capitalisation of RM3.1 bil.
