Axis REIT Splitting for Better Liquidity By Sarah Lim l sarahlim@kenanga.com.my News Proposed a 1:2 share split, essentially doubling its unit base from 547.8m to 1.1b units. Comments We were positively surprised by the announcement as it will lower each unit price which will: (i) make AXREIT more affordable to retail investors, and (ii) improve the marketability and trading liquidity of the stock. On top of AXREITs existing unit base of 547.8m, the unit split exercise will also include any units arising from: (i) 20.0% unit placement, (ii) Income Distribution Reinvestment Plan (IDRP), and (iii) Managers Fee s (refer overleaf). The exercise is pending approval from Securities Commission (SC), followed by approval from unitholders on a meeting which date is yet to be fixed for now. Outlook To date, AXREIT has signed the SPA for 4 out of 5 acquisitions and is expected to complete the due diligence for the remaining asset (Prai Industrial Facility) soon, by 1Q15. AXREIT has already completed the acquisition of Axis Shah Alam DC3 and Axis MRO Hub, while the acquisition of Axis Shah Alam DC2 is expected to be completed by 1Q15. Forecast We make no changes to our FY15-16E. We will adjust our per unit data once the exercise is completed. Our FY15E includes the unit placement (83.6m units) which has already been completed, and acquisition of all 5 assets, including the Prai Industrial Facility. We are estimating gross yields for FY15-16 at 6.2%-6.3%. Rating Maintain UNDERPERFORM Valuation Maintain UP and TP of RM3.27 (ex-split: RM1.64) based on an unchanged target gross yield of 6.7% (2.5ppt spread to the 10-year MGS target of 4.20%). While we applaud management s pro-active efforts in enhancing shareholders value and growing the REIT s portfolio, we are recommending UP due largely to valuations and weakness arising from its exposure to the office segment (38.0% of NLA). Risks to Our Call (i) Bond yield compression, and (ii) improvement in the office segment. UNDERPERFORM Price /Ex-Price: RM3.55/RM1.78 TP/Ex-Split: RM3.27/RM1.64 Share Price Performance KLCI 1,821.25 YTD KLCI chg 3.4% YTD stock price chg -1.9% Stock Information Bloomberg Ticker AXRB MK Equity Market Cap (RM m) 1,944.5 Issued units 547.8 52-week range (H) 3.70 52-week range (L) 3.08 3-mth avg daily vol: 628,997 Free Float 68% Beta 0.5 Major Shareholders EMPLOYEES PROVIDENT 12.9% SKIM AMANAH SAHAM BU 10.6% KUMPULAN WANG PERSAR 8.2% Summary Earnings Table FY Dec (RM m) 2014A 2015E 2016E Turnover 140 192 200 EBIT 113 147 155 PBT 115 120 122 Net Profit (NP) 115 120 122 Core Net Profit 81 120 122 Consensus (NP) n.a. 110 116 Earnings Revision n.a. n.a. n.a. Core EPS (sen) 14.8 21.9 22.2 EPS growth (%) -4% 48% 1% GDPS (sen) 19.8 21.9 22.2 NAV/Unit (RM) 2.42 2.39 2.39 Core PER (x) 23.9 16.2 16.0 Price/NAV (x) 1.5 1.5 1.5 Gearing (x) 0.33 0.37 0.37 G. Dividend Yield (%) 5.6% 6.2% 6.3% PP7004/02/2013(031762) Page 1 of 5
OTHER POINTS Unit base post Unit Split No. of Units Post Unit Split No. of Units Without Unit Split Fund Size 1,095,516,080.00 547,758,040.00 20% placement 219,103,216.00 109,551,608.00 IDRP 155,194,684.00 77,597,342.00 Managers Fees 3,044,000.00 1,522,000.00 Total 1,472,857,980.00 736,428,990.00 Source: Company, Kenanga Research This section is intentionally left blank. PP7004/02/2013(031762) Page 2 of 5
Income Statement Financial Data & Ratios FY Dec (RM m) 2012A 2013A 2014A 2015E 2016E FY Dec (RM m) 2012A 2013A 2014A 2015E 2016E Revenue 136 144 140 192 200 Growth (%) EBITDA 101 108 113 147 155 Revenue 15.7 5.4-2.5 37.4 3.7 Depreciation 0 0 0 0 0 EBITDA 15.3 6.6 4.8 29.8 5.6 EBIT 101 108 113 147 155 EBIT 15.3 6.5 4.7 30.0 5.6 Interest Income -22-23 -22.6-27 -33 PBT 27.3 7.9 3.4 4.3 1.5 Interest Expense 0 0 0 0 0 Net Income 27.2 7.9 3.4 4.3 1.5 Associate 0 0 0 0 0 Core Net Income 22.9 6.1-3.8 47.7 1.5 Exceptionals/FV 21 24 28 0 0 PBT 103 111 115 120 122 Profitability (%) Taxation 0 0 0 0 0 EBITDA Margin 74.4 75.3 80.9 76.4 77.8 Minority Interest 0 0 0 0 0 Operating Margin 74.4 75.2 80.7 76.4 77.8 Net Profit 103 111 115 120 122 PBT Margin 75.7 77.5 82.2 62.4 61.0 Core Net Profit 80 85 81 120 122 Core Net Margin 75.7 77.5 82.2 62.4 61.0 Effective Tax Rate 0.0 0.0 0.0 0.0 0.0 Balance Sheet ROE 10.6 11.0 9.8 9.1 9.3 FY Dec (RM m) 2012A 2013A 2014A 2015E 2016E ROA 6.5 6.9 5.5 5.5 5.6 Fixed Assets 1520 1546 1985 2010 2020 Intangibles 0 0 0 0 0 Other FA 0 0 0 0 0 DuPont Analysis Inventories 0 0 0 0 0 Net margin (%) 75.7 77.5 82.2 62.4 61.0 Receivables 27 4 10 5 6 Assets Turnover (x) 0.1 0.1 0.1 0.1 0.1 Other CA 0 32 0 0 0 Leverage Factor (x) 1.5 1.6 1.6 1.6 1.7 Cash 43 10 61 120 121 ROE (%) 10.6 11.0 9.8 9.1 9.3 Total Assets 1590 1592 2057 2136 2147 Leverage Payables 24 35 40 49 50 Debt/Asset (x) 0.35 0.33 0.33 0.37 0.37 ST Borrowings 341 264 419 314 324 Debt/Equity (x) 0.55 0.53 0.53 0.61 0.62 Other ST Liability 0 0 0 0 0 Net Debt/(Cash) 506 518 622 661 670 LT Borrowings 208 264 265 467 467 Net Debt/Equity (x) 0.51 0.52 0.48 0.52 0.52 Other LT Liability 27 25 36 25 25 Minority Int. 0 0 0 0 0 Valuations Net Assets 990 1004 1298 1281 1281 Core EPS (sen) 14.5 15.4 14.8 21.9 22.2 GDPS (sen) 18.6 18.5 19.8 21.9 22.2 Unit Capital 735 751 1045 1028 1028 NAV/unit (RM) 1.81 1.88 2.42 2.39 2.39 Reserves 254 253 253 253 253 Core PER (x) 24.4 23.0 23.9 16.2 16.0 Unitholders Equity 990 1004 1298 1281 1281 G. Div. Yield (%) 5.2 5.2 5.6 6.2 6.3 P/NAV (x) 2.0 1.9 1.5 1.5 1.5 Cashflow Statement EV/EBITDA (x) 24.2 22.8 22.7 17.7 16.8 FY Dec (RM m) 2012A 2013A 2014A 2015E 2016E Operating CF 121 136 169 161 156 Investing CF -244-27 -427-36 -10 Financing CF 163-115 344-66 -145 Net Change in Cash 41-6 86 59 1 Free Cash Flow 365 160 608 186 166 Source: Kenanga Research Fwd Core PER Band Fwd PBV Band Source: Bloomberg, Kenanga Research PP7004/02/2013(031762) Page 3 of 5
NAME Price (3/3/15) Mkt Cap PER (x) Est. NDiv. Yld. ** Historical ROE P/BV Net Profit (RMm) FY14/15 NP Growth FY15/16 NP Growth (RM) (RMm) FY13/14 FY14/15 FY15/16 (%) (%) (x) FY13/14 FY14/15 FY15/16 (%) (%) (RM) Target Price Rating M-REIT & PROPERTY INVESTMENT UNDER COVERAGE KLCCSS * 6.91 12,475 19.5 18.2 17.7 4.9% 7.9% 1.0 639.1 684.6 704.6 7.1% 2.9% 6.67 UNDER PERFORM Pavilion REIT 1.52 4,584 20.4 19.8 18.9 4.6% 13.9% 1.3 232.4 230.7 244.7-0.7% 6.1% 1.31 UNDER PERFORM IGB REIT* # 1.36 4,696 20.2 20.5 19.6 5.0% 8.8% 1.3 232.6 229.9 241.9-1.2% 5.2% 1.26 MARKET PERFORM Sunway REIT* 1.66 4,873 19.7 17.0 14.8 4.8% 11.1% 1.2 231.9 246.8 285.9 6.4% 15.9% 1.68 OUTPERFORM CapitaMalls (M) Trust* 1.50 2,668 17.8 16.8 15.4 5.4% 10.6% 1.2 149.7 159.3 173.9 6.4% 9.1% 1.48 UNDER PERFORM Axis REIT*^ 3.55 1,945 23.9 16.2 16.0 5.6% 9.8% 1.6 81.3 120.0 121.8 47.7% 1.5% 3.27 UNDER PERFORM * Core NP and Core PER ** KLCCSS, CMMT, AXREIT, PAVREIT and IGBREIT based on FYDec15E and SUNREIT on FYJun15E/FY16E # FY13/14 core earnings growth based on non-annualized FY12/13 core earnings ^ Ex-split target price: RM1.64 CONSENSUS NUMBERS YTL Hospitality REIT 1.03 1,364 7.3 11.4 11.4 8.7% 13.2% 0.9 55.7 112.0 133.0 101% 19% n.a. BUY Al-'Aqar Healthcare REIT 1.43 996 14.0 16.1 15.5 6.2% 9.5% 1.2 71.4 57.8 64.1-19% 11% 1.50 NEUTRAL AmanahRaya REIT 0.91 519 4.8 11.3 11.3 8.8% 17.2% 0.8 42.2 44.3 45.9 5% 4% n.a. BUY AmFIRST REIT 0.95 649 11.7 11.8 10.5 7.4% 7.0% 0.7 63.1 56.8 58.4-10% 3% n.a. BUY Hektar REIT 1.50 601 11.9 12.5 12.5 7.3% 8.2% 1.0 58.8 46.7 48.5-21% 4% 1.51 BUY Quill Capita Trust 1.22 476 11.8 13.6 12.4 7.0% 7.5% 0.9 34.5 37.1 48.3 7% 30% 1.25 BUY Tower REIT 1.28 359 7.4 10.7 10.7 9.4% 9.3% 0.7 32.7 32.4 33.6-1% 4% n.a. BUY UOA REIT 1.58 668 13.6 13.2 13.2 7.6% 7.7% 1.1 44.8 47.7 49.7 7% 4% n.a. BUY Atrium REIT 1.20 146 9.9 12.0 12.0 8.3% 8.9% 0.9 14.8 11.9 12.2-20% 0% n.a. BUY Source: Kenanga Research PP7004/02/2013(031762) Page 4 of 5
Stock Ratings are defined as follows: Stock Recommendations OUTPERFORM :A particular stock s Expected Total Return is MORE than 10% (an approximation to the 5-year annualised Total Return of FBMKLCI of 10.2%). MARKET PERFORM :A particular stock s Expected Total Return is WITHIN the range of 3% to 10%. UNDERPERFORM :A particular stock s Expected Total Return is LESS than 3% (an approximation to the 12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate). Sector Recommendations*** OVERWEIGHT :A particular sector s Expected Total Return is MORE than 10% (an approximation to the 5-year annualised Total Return of FBMKLCI of 10.2%). NEUTRAL :A particular sector s Expected Total Return is WITHIN the range of 3% to 10%. UNDERWEIGHT :A particular sector s Expected Total Return is LESS than 3% (an approximation to the 12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate). ***Sector recommendations are defined based on market capitalisation weighted average expected total return for stocks under our coverage. This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees. Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies. Published and printed by: KENANGA INVESTMENT BANK BERHAD (15678-H) 8th Floor, Kenanga International, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia Telephone: (603) 2166 6822 Facsimile: (603) 2166 6823 Website: www.kenanga.com.my Chan Ken Yew Head of Research PP7004/02/2013(031762) Page 5 of 5