4Q23 results showed a marked improvement from higher occupancy rates.
RHB Investment Bank Berhad (RHB), in its Malaysia Results Review release today (Jan 24) said they expect a strong recovery in FY24, premised on the commencement of new leases from Axis REIT’s (AXRB MK) major developments: Bukit Raja Distribution Centre 2 (BRDC2) and Axis Mega Distribution Centre (AMDC) Phase 2.
RHB maintain BUY and DDM-derived MYR2.04 TP, 15% upside with c.6% FY24F yield. FY23 results were in line with expectations, with 7% lower earnings due to the higher borrowing costs and non-property expenses.
RHB cited that Results in line
4Q23 core profit of MYR42.3m (+11.8% QoQ, +15% YoY) brought the FY23 earnings to MYR146.3m (-7.4% YoY). This was in line with expectations at 100% and 96% of our and Street’s estimates. Axis REIT declared a DPU of 2.40 sen, bringing the full-year DPU to 8.65 sen (FY22: 9.75 sen).
Results review
Axis REIT’s revenue increased 5.2% sequentially (6.8% YoY), mainly due to the full quarter impact of the new tenancies that commenced in 3Q23 at BRDC2 and Shah Alam Distribution Centre 3.
Property expenses were 2.9% lower QoQ from lower maintenance costs, resulting in marginally higher net property income or NPI margin of 87.6% (3Q23: 86.2%, 4Q22: 87.6%).
Axis REIT also recorded a MYR2m reversal of provisions for doubtful debts during this quarter, which led to the improved bottomline. However, full-year earnings were lower due to 14% higher financing costs (interest rate hikes) and non-property expenses (provisions for defaulted tenant).
Better outlook ahead
On top of the full-year contributions from BRDC2, FY24 should also see the completion of AMDC Phase 2, which will double the size of the existing facility (c.4% of total NLA). RHB also expects the REIT to be able to secure a new tenant to fill up Axis Steel Centre @ SiLC after seizing back the vacant building – its generic facilities should be immediately suitable for prospective tenants.
In terms of inorganic growth, Axis REIT completed the acquisition of Axis Hypermarket @ Temerloh for MYR26m on 16 Jan. It is also still in the midst of acquiring a manufacturing facility in Sendayan, Negeri Sembilan, for MYR48m.
Earnings forecasts
RHB make minor adjustments to their FY24F-25F earnings after updating the FY23 numbers. RHB also introduced their FY26F earnings of MYR192m. RHB’s TP incorporates a 2% ESG premium, based on our in-house methodology and 3.0 country median.
Key risks include the non-renewal of its expiring leases and increased competition.
4Q23: In-line
Meanwhile, Maybank Investment Bank Berhad (Maybank IB) 4Q23 believes the higher YoY core earnings were mainly attributed to positive rental reversions and contribution from new assets. A final gross DPU of 2.40 sen was declared and it was within Maybank IB’s expectations, bringing FY23 gross DPU to 8.65 sen.
Maybank IB adjusted their FY24/25E earnings by -6%/-3%, DDM-TP by +2sen to MYR2.18 (Ke: 6.9%) after rolling
forward valuation.
Some rental income improvements
Excluding one-off net gains of MYR69.6m (largely from revaluation gains of MYR81.3m), 4Q23 core net profit was MYR40.7m (+8% YoY, +9% QoQ).
This brings FY23 core net profit to MYR149.6m (-6% YoY), at 97%/98% of our/consensus’ full-year estimates. YoY, we believe 4Q23’s earnings growth was encouraged by (i) additional contribution from a new asset (i.e. Bukit Raja Distribution Centre 2 (BRDC 2)), (ii) positive rental reversions, and (iii) lower opex.
This was partly offset by higher finance costs (+3%) to fund asset acquisitions/developments. Similarly, the higher QoQ core earnings was due to higher occupancy of its existing portfolio and commencement of lease for BRDC 2 in Aug 2023.
Adjusting forecasts
Maybank IB adjusted their FY24/25E earnings forecasts by -6%/-3% post FY23 results, mainly to account for (1) new rental from Phase 2 development of Axis Mega Distribution Centre, expected to be ready for tenancy from Aug 2024 onwards, with a similar rental structure as Nestle DC, and (2) higher finance cost.
Maybank IB also introduced their FY26E estimate.
Medium-term earnings outlook unchanged
Maybank IB expects stronger earnings in FY24E (+29% YoY) mainly backed by: (i) new assets contribution (i.e. manufacturing facility in Sendayan, hypermarket in Temerloh, BRDC 2 and post development of Axis Mega DC 2 – expected to complete by 1Q24), (ii) rental reversions (low-single digit), and (iii) stable occupancy rates across most assets.
