axis reit : quattro west started to contribute - 21/10/2010

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Table 1 : Investment Statistics (AXREIT; Code: 5106) Bloomberg: AXRB MK

Net

FYE Turnover Profit # EPU Growth PER DPU C. EPU P/ NAV ROE Gearing GDY

Dec (RMm) (RMm) (sen) (%) (x) (sen) (sen) (x) (%) (%) (%)

2009 71.6 42.9 15.8 2.0 13.8 15.8 - 1.2 7.8 34.0 7.2

2010f 87.4 51.2 16.7 5.6 13.1 16.7 17.5 1.2 8.9 34.4 7.6

2011f 111.8 70.4 18.7 12.3 11.6 18.7 18.5 1.2 10.3 33.6 8.6

2012f 112.5 70.9 18.9 0.8 11.6 18.9 19.8 1.2 10.4 33.9 8.7

Main Market Listing /Non-Trustee Stock # Normalised * Consensus Based On IBES Estimates

Within expectations. Axis REITs 3Q10 realised net profit of RM12.6m(+22.8% yoy; +3.9% qoq) was in line with our expectation and consensusestimates. The headline net profit of RM24.3m included a fair value gain

amounted to RM11.7m arising from the revaluation of 7 properties.

Sequential revenue increased by 6.5%, mainly attributed to the contribution

of Quattro West (formerly known as Nestle House), which commenced its

operations in Aug, as well as positive rental reversion of 6.1% up to Sept

2010. A 4 sen DPU was declared for 3Q10. Including the 7.7 sen DPU paid in

1H10, 9M10 DPU amounted to 11.7 sen, on track to meet our FY10 DPU

forecast of 16.7 sen.

4 new properties to contribute to 4Q10 earnings. The placementexercise has just completed in mid Sept 2010. Going into 4Q10, 4 new

properties will make their maiden contribution to earnings. These include:

Tesco Bukit Indah Johor, PTP D8 warehouse in Johor, Axis PDI Centre in

Banting and Axis Technology Centre in PJ. The acquisition of these propertieswill be completed progressively throughout Oct and Nov. Earnings growth

next year will be more substantial due to the full contribution of all the new

properties.

Risks. The risks include: (1) Unfavourable economic conditions; and (2)Country risks.

Forecasts. Maintained. Investment case. We continue to like Axis REIT given its strong track

record in asset acquisitions. Although the MREITs sector did not benefit from

the recent Budget 2011, the sector continues to offer a generous yield of 7-

8%, suitable for investors who look for defensive investments. We maintain

our indicative fair value at RM2.67 for Axis REIT, based on an unchanged 7%

target yield on our FY11 DPU forecast of 18.7 sen. Maintain Outperform.

Corporate High l ig hts

R e su l t s No t e

Axis REITQuattro West Started To ContributeM

alasia RHB ResearchInstitute Sdn Bhd

A member of theRHB Banking GroupCompany No: 233327 -M

21 October 2010

Share Price : RM2.18Fair Value : RM2.67Recom : Outperform

(Maintained)M

ARKET

DATELINE

PP

7767/09/2011(028730)

RHBRI Vs. Consensus

Above

In Line Below

Issued Capital (m shares) 375.9Market Cap (RMm) 819.5Daily Trading Vol (m shs) 0.352wk Price Range (RM) 1.82-2.20

Major Shareholders: (% )

Baiduri Kemas 13.2

EPF 8.1

FYE Dec FY10 FY11 FY12

EPS chg (%) - - -

Var to Cons (%) (4.8) 1.2 (4.7)

PE Band Chart

Relative Performance To FBM KLCI

Loong Kok W en, CFA(603) 92802237

[email protected]

Please read important disclosures at the end of this report.

Axis REIT

FBM KLCI

PER = 15xPER = 12xPER = 9xPER = 6x


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IMP ORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. Theopinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ orbe contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to beconstrued as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in anymanner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated personsmay from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectivesof persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluateparticular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment orstrategy will depend on an investors individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents acceptsany liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the RHB Group) are engaged in securities trading, securities brokerage, banking and financing activities as well as providinginvestment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHBGroup may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity

securities or loans of any company that may be involved in this transaction.

Connected Persons means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,officers, employees and agents of each of them. Investors should assume that the Connected Persons are seeking or will seek investment banking or otherservices from the companies in which the securities have been d iscussed/covered by RHBRI in this report or in RHBRIs previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflectinformation known to, professionals in other business areas of the Connected Persons, including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation basedupon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows: -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Table 2. Axis REIT Quarterly Results

FYE Dec (RMm) 3Q09 2Q10 3Q10QoQ(% )

YoY(% )

9M09 9M10YoY(% )

Comments

Total trust revenue 17.7 21.0 22.4 6.5 26.7 52.4 63.3 20.8 Yoy improvement was mainly due tothe contribution from Quattro West,which commenced operation in Aug2010.

Net rental income 14.5 17.8 18.6 4.6 27.9 43.8 53.0 21.2

other expenses (1.6) (1.7) (1.9) 11.5 19.2 (4.4) (5.2) 17.6

Net interest income/

expenses

(2.6) (4.0) (4.5) 12.0 74.3 (8.0) (12.0) 49.6

Pre-tax profit 10.2 21.9 24.3 10.9 136.7 33.2 60.4 81.9

Change in FV 0.0 9.8 11.7 19.6 n.m. 2.0 24.0 n.m. Revaluation surplus on 7 properties

was recognised in 3Q10 numbers.Taxation 0.0 0.0 0.0 n.m. n.m. 0.0 0.0 n.m.

Net profit 10.2 21.9 24.3 10.9 136.7 33.2 60.4 81.9

Normalised net

profit

10.2 12.1 12.6 3.9 22.8 31.3 36.4 16.5 Within expectations.

Normalised EPU (sen) 3.8 3.9 3.9 (0.1) 2.9 12.0 9.7 (19.5)

NAV / shr (RM) 1.7 1.8 1.9 2.7 8.8 1.7 1.9 8.8

DPU (sen) 4.1 4.0 4.0 0.0 (1.5) 12.1 11.7 (3.0)

Table 3: Earnings Forecasts

FYE Dec (RMm) FY09a FY10F FY11F FY12F

Gross revenue 71.6 87.4 111.8 112.5Operating profit 42.9 51.2 70.4 70.9Interest expenses (10.5) (12.6) (14.8) (14.8)PBT 62.0 63.5 78.6 70.9Tax 0.0 0.0 0.0 0.0Minority interest 0.0 0.0 0.0 0.0

Realised net income 42.9 51.2 70.4 70.9EPU (sen) 15.8 16.7 18.7 18.9DPU (sen) 15.8 16.7 18.7 18.9


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Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or moreover a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take onhigher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommendedsecurities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for theactions of third parties in this respect.

axis reit : quattro west started to contribute - 21/10/2010

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