4QFY10 : Within expectations

• FY10 in line with expectations
Axis REIT reported FY10 realised net profit of RM52.6m, a 22.7% y-o-y increase backed by higher rental revenue. This was in line with our full-year estimates of RM53.2m, as well as market’s expectations. Unrealised profit stood at RM48.8m which included change in fair value of properties and gain on financial liabilities. This brings total net profit to RM101.3m for the year. Axis also announced a final income distribution of 5.25 sen/unit. Together with the 10.75 sen DPU paid earlier, total FY10 DPU amounts to 16.00 sen, which is in line with our expectations.

• Revaluation gain of RM23.0m
Following a revaluation exercise on fourteen of its properties, a revaluation gain of RM23.0m was recognised in 4Q10. With the gain, Axis’ NAV/unit is increased by 3% q-o-q to RM2.00.

• Target FY10 AUM of >RM1.0bn reached
Total size of asset under management (AUM) has reached RM1.2bn, meeting management’s target of >RM1.0bn for the year. This is contributed by the acquisitions of Tesco Johor, Axis PDI Centre, Axis Technology Centre and PTP D8 in Johor, all completed in Nov 2010.

• Disposal of Axis North Port LC1
Axis plans to dispose of Axis North Port LC1 for RM14.5m to Freight Management (M) Sdn Bhd. Due to Axis North Port limited rental growth going forward, Axis feels it is an appropriate time to dispose of Axis North Port and re-deploy the capital for more yield accretive properties. The net gain on the disposal is estimated to be RM764k after netting of 5% real property gain tax (RPGT). This translates to a 20 sen DPU which will be distributed to unitholders upon completion of the disposal, expected in end-Jun 2011. The balance will be used to reduce Axis’ gearing.

• Maintain Buy, TP RM2.90
We maintain Buy on Axis REIT with target price RM2.90 (derived from the Gordon Growth Model). Our target price implies a FY11 P/BV of 1.6x and net yield of 6.4%. Axis is our preferred play on investment properties in the country due to its impeccable track record—it has the highest total to-date return compared to the other Malaysian REITs.