You are on page 1of 3

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
MARKET DATELINE

Axis REIT Share Price


Fair Value
:
:
RM2.00
RM2.35
Buys Property In Port Of Tanjung Pelepas Recom : Outperform
(Maintained)

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


Net
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%
Below
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
joshuang@rhb.com.my

A comprehensive range of market research reports by award-winning economists and analysts are exclusively Page 1 of 3
available for download from www.rhbinvest.com
Table 2. Axis REIT Quarterly Results
QoQ YoY YoY
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
buildings.
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
profit
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

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
any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity
securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

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
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

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

A comprehensive range of market research reports by award-winning economists and analysts are exclusively Page 2 of 3
available for download from www.rhbinvest.com
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.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the
actions of third parties in this respect.

A comprehensive range of market research reports by award-winning economists and analysts are exclusively Page 3 of 3
available for download from www.rhbinvest.com