RHB maintains buy on Axis REIT, TP increased to RM1.94

KUALA LUMPUR: RHB research has maintained its buy call on Axis REIT with a new target price of RM1.94 from RM1.82 previously.

The research house's forecasts for FY19F-21F remain unchanged but it increased the target price after updating for lower cost of equity assumptions. 

"Although its expected dividend yield of 5% is lower than the REIT sector average, we believe it is fair – given its shariah REIT status and the quality of its assets.

"The downside risk to our call is an oversupply of office properties, which may affect its office properties’ occupancy and rental rates," it said.

In a research note, RHB said Axis REIT's occupancy rates remain stable at 84% as at Dec 2018 with a stable weighted average lease expiry period of 5.57 years based on rental. 

"The industrial sector is expected to remain positive, driven by demand for warehousing and manufacturing space. Meanwhile, the office sector remains challenging with an oversupply of office space, especially in the Klang Valley," it said.

RHB expects the REIT to acquire two or three more assets in 2019 to add to its existing 45 assets. However, the research house does not expects the acquisitions to be very sizeable as the REIT's gearing as already reached 37%.

AXIS REIT's net lettable area (NLA) up for renewal is slightly higher this year at 21% as compared to 18% in FY18. 

However, RHB believes the risk of non-renewal is lower as 19% of the renewals comprise of industrial offices, warehouse logistics and manufacturing facilities.  It added that the risk of non-renewal in its single-tenanted assets may be mitigated by the fixed facilities in place.