05 Aug 2008 Axis REIT - No surprises from H108 results; BUY

Axis REIT BUY



Price target RM2.30



Share price at 04 Aug RM1.68



Investment summary

H108 results were in-line with forecast. We continue to like AXRB: (1) Its share price has fallen -26% since Jul07, translating into an attractive FY08E DY of 8%. AXRB is currently the highest yielding REIT in Malaysia. (2) We expect management to maintain its historical AUM growth of 21% pa since its IPO in 2005, having recently completed an RM12.5m industrial property acquisition in Johor with another RM27m in the pipeline.



We remain positive on REITs: (1) the current inflationary environment favors asset revaluations and rental accretion via step-up agreements; (2) high defensive yield (on average >200bps above Singaporean REITs and MGS) caps downside; (3) possible policy gains from tax reforms to eliminate double-taxation.



Cheaper entry points later

While AXRB’s gearing is comfortably within maximum limit, it will place out new shares by Q408 to fund new acquisitions. Coupled with current weak market conditions, we think this will create overhang in the share price. Stock is fundamentally attractive, but investors should wait for cheaper entry points later.