PP 7767/09/2010(025354)

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su lt s N o te
20 July 2010
MARKET DATELINE

Axis REIT Share Price

Fair Value
:
:
RM2.07
RM2.55
1HFY12/10 Net Property Income Grows 18% YoY Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (AXREIT; Code: 5106) Bloomberg: AXRB MK

Net
FYE Turnover profit EPU Growth PER DPU C. EPU P/NAV ROE Gearing GDY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (sen) (x) (%) (%) (%)
2009 71.9 42.9 16.0 4.8 13.0 15.8 - 1.2 7.8 0.3 7.6
2010f 83.9 50.5 16.4 3.0 12.6 16.4 17.0 1.3 10.0 0.4 7.9
2011f 90.9 54.9 17.9 8.7 11.6 17.9 18.0 1.3 10.8 0.4 8.6
2012f 93.1 57.6 18.8 4.9 11.0 18.8 18.0 1.2 11.3 0.4 9.1
Main Market Listing /Non-Trustee Stock * Consensus Based On IBES Estimates

♦ 4sen distribution for 2QFY12/10. Excluding RM12.3m property fair value RHBRI Vs. Consensus
Above
and derivative gains, normalised 1HFY12/10 net profit of RM23.8m came in
In Line
within expectations at 47-48 of our full-year forecast and the full-year
Below
market consensus. Axis REIT declared income distribution of 4sen for
2QFY12/10. Cumulatively, for 1HFY12/10, Axis REIT has declared income Issued Capital (m shares) 307.1
distribution of 7.7sen that makes up 47% of our full-year forecast of 16.4sen. Market Cap (RMm) 635.7
Daily Trading Vol (m shs) 0.3
♦ Risks. The risks include: (1) Continued marginalisation of Malaysia as a 52wk Price Range (RM) 1.59-2.07
manufacturing/industrial base; and (2) Unfavourable economic conditions. Major Shareholders: (%)
Baiduri Kemas 13.2
♦ Forecasts. Maintained.
EPF 7.6
♦ Investment case. We believe the M-REIT sector is due for another round
of re-rating, thanks largely to its rising investability on the back of a
FYE Dec FY10 FY11 FY12
quantum-leap in its market size with the recent listing of two sizeable new EPS chg (%) - - -
M-REITs, i.e. Sunway REIT and CapitaMalls Malaysia Trust. Also, the Var to Cons (%) -3 -1 +4
defensiveness in terms of share price performance and earnings makes
REITs an asset class that cannot be ignored, particularly, against a backdrop PE Band Chart

of a highly volatile market at present. Axis REIT is a good proxy to the PER = 12x
PER = 10x
sector given its still undemanding valuations. Indicative fair value is raised PER = 8x
from RM2.35 to RM2.55 as we roll forward the base year for valuation PER = 6x

purpose from FY12/10 to FY12/11. The valuation is based on our 7% target

yield for M-REITs. Maintain Outperform.

Relative Performance To FBM KLCI

Axis REIT

FBM KLCI

Joshua Ng
Please read important disclosures at the end of this report.
(603) 92802151
joshuang@rhb.com.my

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 Table 2: Earnings Review (YoY Cumulative)
FYE Dec 2009 2010 YoY Observations/Comments
(RMm) 6M 6M Chg
Gross revenue 34.7 40.8 18% First full-year contributions from Axis Steel Centre and Bukit Raja Distribution
Centre as well as maiden contribution from newly-acquired Prai industrial
buildings.
Net property income 29.3 34.5 18%
Interest income 0.0 0.1 nm
EI 2.0 12.3 >100% RM10.9m property fair value gains and RM1.4m derivative gains in FY10.
Expenditure (8.3) (10.7) 30%
Pretax profit 23.0 36.1 57%
Taxation 0.0 0.0 nm
Net profit 23.0 36.1 57% Inflated by exceptional items.
EPU (sen) 8.97 11.77 31% Inflated by exceptional items.
DPU (sen) 8.00 7.70 (4%)

Pretax margin (ex-EI) 61% 58% (2% pts) Cost pressure.

Effective tax rate 0% 0% 0%

Table 3: Earnings Review (QoQ)

FYE Dec 2010 2010 QoQ Observations/Comments
(RMm) 1Q 2Q Chg
Gross revenue 19.8 21.0 6% First full-quarter contribution from Prai Industrial buildings.
Net property income 16.7 17.8 6%
Interest income 0.1 0.0 (16%)
EI 2.6 9.8 >100% Property fair value and derivative gains over the two quarters.
Expenditure (5.1) (5.7) 12%
Pretax profit 14.3 21.9 53%
Taxation 0.0 0.0 nm
Net profit 14.3 21.9 53% Inflated by exceptional items.
EPU (sen) 4.65 7.12 53% Inflated by exceptional items.
DPU (sen) 3.70 4.00 8%

Pretax margin (ex-EI) 59% 58% (1% pt) Cost pressure.

Effective tax rate 0% 0% 0%

Table 4: Earnings Forecasts

FYE Dec (RMm) FY09a FY10F FY11F FY12F

Gross revenue 71.9 83.9 90.9 93.1

Revenue growth (%) 13.3 16.8 8.3 2.5
Property expenses (5.7) (14.9) (17.2) (18.0)
Net rental income 59.9 69.0 73.7 75.2
Interest Income 0.3 0.1 0.0 0.0
Change in fair value 19.1 0.0 0.0 0.0
Non-prop expenses (17.3) (18.6) (18.9) (17.6)
PBT 62.0 50.5 54.9 57.6
Tax 0.0 0.0 0.0 0.0
Net income 62.0 50.5 54.9 57.6
-realised 42.9 50.5 54.9 57.6
-unrealised 19.1 0.0 0.0 0.0
EPU 16.0 16.4 17.9 18.8
DPU 15.8 16.4 17.9 18.8
Dividend payout (%) 99.0 100.0 100.0 100.0

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
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investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
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“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
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This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
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The recommendation framework for stocks and sectors are as follows: -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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securities, subject to the duties of confidentiality, will be made available upon request.

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