Commenting on its latest quarterly financial results, Kenanga Research said the realised net income in the nine months of 2017 of RM68.4mil is broadly within its and consensus expectations at 74% and 72%, respectively.
KUALA LUMPUR: Hong Leong Investment Bank (HLIB) Research is retaining its Hold call for Axis REIT with a lower target price of RM1.7- versus RM1.71 after revising its earnings forecast.
It said on Tuesday the Hold call was based on expectations the benefits from the revision of REIT guidelines to only emerge over a longer-term horizon.
“Rerating of this stock will be warranted once (i) improved take up rate on its vacant/low occupancy properties; and (ii) securing near-term net lettable area (NLA) expiry,” it said.
As for the target price, the research house said it was derived based on FY18 distribution per unit (DPU) with unchanged targeted yield at 5.1%.
HLIB Research said the 3QFY17 normalised net profit of RM22m (-on-quarter: -6.5%; -on-year: -8.2%) translated into 9MFY17 normalised net profit of RM68.8m (+0.3% -on-year) which is slightly below expectations, accounting for 70.9% of its and 71.7% of consensus estimates.
The lower earnings were due to higher administrative expenses and financing cost incurred to fund new acquisitions.
Year-to-date, normalised net profit remained flattish as rental proceeds from newly acquired assets at Scomi Facility@Rawang and Kerry Warehouse were offset by higher administrative expenses and financing cost.
Overall occupancy rate slightly improved to 90.1% (2QFY17: 89.1%) reinforced by a positive rental reversion of 5.9%.
“We understand that management is in advanced stages to conclude new tenants for some of the vacant spaces. We estimate that circa 1.72 sen will be add to the annual DPU of 8.6 sen once the current vacant spaces (753,404 sq ft) are filled.
“Besides, management is also actively sourcing and evaluating potential acquisition targets with a total estimated value of RM228.5mil,” it said.
However, HLIB Research said the risks are Axis REIT’s high concentration on logistic warehouse, office / industrial and manufacturing facilities.
“Our FY17-19 earnings forecasts are reduced by 2.4%, 1.2% and 1.2% respectively after factoring in higher administrative expenses,” it said.
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