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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
21 April 2010

Axis REIT Share Price

Fair Value
Buys Property In Port Of Tanjung Pelepas Recom : Outperform

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

FYE Turnover profit EPU Growth PER DPU C. DPU P/NAV ROE Gearing GDY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (sen) (x) (%) (%) (%)
2009 71.9 42.9 16.0 4.8 12.5 15.8 - 1.1 7.8 0.3 7.9
2010f 83.9 50.5 16.4 3.0 12.2 16.4 16.0 1.2 10.0 0.4 8.2
2011f 90.9 54.9 17.9 8.7 11.2 17.9 17.0 1.2 10.8 0.4 8.9
2012f 93.1 57.6 18.8 4.9 10.7 18.8 19.0 1.2 11.3 0.4 9.4
Main Market Listing /Non-Trustee Stock * Consensus Based On IBES Estimates

♦ Within expectations. Excluding unrealised gains of RM2.6m, Axis REIT reported RHBRI Vs. Consensus
RM11.7m net profit in 1QFY12/10 (+0.8% qoq and +12.4% yoy). This was within Above
In Line
expectations, accounting for 23-24% of our and consensus estimates. The 12.4%
yoy earnings growth was mainly driven by contributions from its newly-acquired
assets in FY09 i.e. Axis Steel Centre, Bukit Raja Distribution Centre and Prai Issued Capital (m shares) 307.1
industrial buildings (which were completed on 5 March 10). The company has Market Cap(RMm) 614.2
proposed an interim dividend of 3.7 sen for 1Q10, which was in line with our Daily Trading Vol (m shs) 0.3
expectation. Meanwhile, the company’s gearing ratio increased from 0.34x 52wk Price Range (RM) 1.34-2.07
Major Shareholders: (%)
(4Q09) to 0.35x as at end-1Q10 following the acquisition of Prai buildings.
Baiduri Kemas 13.2
♦ Buys office building and warehouse in PTP. The company has proposed to
EPF 7.6
acquire an office building and warehouse in Port of Tanjung Pelepas (PTP) for
RM30m. The buildings are currently fully occupied. It has a 10-year lease
agreement (with fixed step-up rental) with Nippon Express S/B. We like the deal FYE Dec FY10 FY11 FY12
for two key reasons: a) it is a yield-accretive and earnings-enhancing acquisition EPS chg (%) 0.4 3.1 8.1
Var to Cons (%) 0.0 0.1 (1.3)
as the properties fetch a triple net yield of 9.2% (vs. its trading yield of 8.2%)
with an interest cost of 4%; and b) the purchase price of RM30m is at a slight PE Band Chart
discount to market value of RM31m, giving rise to a capital gain of RM0.5m (after
deducting other acquisition costs). The properties are expected to boost our PER = 12x
PER = 10x
FY10-12 earnings forecasts by 0.3-8.1% assuming the acquisition will be
PER = 8x
completed by Oct 2010. PER = 6x

♦ Quattro West is close to secure 100% occupancy rate. The refurbishment

works on Quattro West (formerly known as Nestle House) have been completed.
YTD, 84% of total space has been leased out and the company is still in talks with
other prospective tenants for the remaining space. The building will open for
business on 1 July 2010. Relative Performance To FBM KLCI

♦ Risks. The risks include: 1) non-renewal of tenancy after expiry; and 2) Axis REIT
unfavourable economic conditions.

♦ Forecasts. We are upgrading our FY10-12 earnings forecasts by 0.4-8.1% to

factor in earlier-than-expected completion of the acquisition of industrial building
in Seberang Prai (early March 10, instead of May 10 previously) as well as the FBM KLCI
new acquisition in PTP.

♦ Investment case. We benchmark Axis REIT at dividend yield of 7% (in line with
the pre-crisis average yield of 6.5-7%), arriving at an indicative fair value of
RM2.35 (from RM2.34 after the earnings upgrade). Maintain Outperform.

Joshua Ng
Please read important disclosures at the end of this report.
(603) 92802237

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Table 2. Axis REIT Quarterly Results
FYE Dec (RMm) 1Q09 4Q09 1Q10 3M09 3M10 Comments
(%) (%) (%)
Total trust revenue 17.3 19.5 19.8 1.7 14.5 17.3 19.8 14.5 Yoy improvement due to full-year
contributions from Axis Steel Centre
and Bukit Raja Distribution Centre as
well as newly-acquired Prai industrial
Net rental income 14.6 16.2 16.7 3.5 14.3 14.6 16.7 14.3
other expenses (1.7) (1.9) (1.6) (15.1) (6.1) (1.7) (1.6) (6.1)
Net interest income/ (2.5) (2.7) (3.4) 28.4 36.2 (2.5) (3.4) 36.2 Gearing ratio increased from 0.34x as
expenses at end-4Q09 to 0.35x as at end-1Q10.
Pre-tax profit 10.4 11.6 11.7 0.8 12.4 10.4 11.7 12.4
Change in FV 0.0 17.1 2.6 (85.1) Na 0.0 2.6 Na RM1.8m revaluation gain and RM0.8m
net gain on financial liabilities.
Taxation 0.0 0.0 0.0 Na Na 0.0 0.0 Na
Net profit 10.4 28.8 14.3 (50.4) 36.9 10.4 14.3 36.9
Normalised net 10.4 11.6 11.7 0.8 12.4 10.4 11.7 12.4
Normalised EPU (sen) 4.1 3.8 4.7 22.8 14.2 4.1 4.7 14.2
NAV / shr (RM) 1.8 1.8 1.8 1.1 3.4 1.8 1.8 3.4
DPU (sen) 3.9 3.7 3.7 (1.1) (5.1) 3.9 3.7 (5.1) Within expectation. Ex-date is 30 Apr
10 and payment date is 27 May 10.

Table 3. 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


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The recommendation framework for stocks and sectors are as follows: -

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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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