REIT MALAYSIA March 18, 2013 Axis REIT COMPANY NOTE AXRB MK / AXSR.KL Current RM3.34 SHORT TERM (3 MTH) LONG TERM Market Cap Avg Daily Turnover Free Float Target RM3.68 Previous Target N/A US$488.2m US$0.38m 83.8% RM1,525m RM1.16m 989.7 m shares Up/downside 10.3% Conviction| | Notes from the Field Proxy for Iskandar's industrial boom Axis REIT is the first listed Islamic industrial/office REIT globally. We like the stock as it offers exposure to the industrial property boom in Iskandar Malaysia. Management's proactive style means that growth will be driven by acquisitions, apart from organic enhancement plans. Foong Wai Mun, CFA We initiate coverage with an serves as an attractive low-cost T (60) 3 20849277 E [email protected] Outperform and a target price based alternative for firms seeking to on its DDM value. Rerating catalysts relocate out of Singapore. Axis AME are 1) further yield-accretive asset IP plans to expand the development Company Visit Expert Opinion acquisitions, and 2) upside surprises of its “clean and green” industrial to rental rates post asset parks under the brand names i-Park Channel Check Customer Views enhancement initiatives. and SME City nationwide. We are positive as such plans will give more “Singapore faces land Malaysia's largest industrial visibility to potential future asset constraints and there is a REIT injections for Axis REIT. big industrial component Axis REIT is Malaysia's largest Proven acquisition track there. It's getting industrial REIT with a total portfolio record expensive to do business size of RM1.5bn (31 assets). Its portfolio is occupied by quality Axis REIT has a strong and proven in Singapore and that tenants, comprising a mix of MNCs, acquisition track record. Since listing, makes Johor the default local companies and GLCs. its portfolio has grown more than choice for companies to fourfold from RM0.3bn to RM1.5bn move across. Demand is Proxy for boom in industrial in seven years. Currently, it has plans going through the roof property in Iskandar to buy nine assets worth a total RM660m, of which RM350m (23% and availability is quite We believe Axis REIT is a good proxy for the boom in industrial properties increase) is expected to be added this constrained. It's a big in Iskandar Malaysia as its promoter year. Funding will come from the opportunity for us to look (Axis Group) is aggressively placement of 90.8m new units, of at some of the assets that co-developing industrial parks and which approval has already been are being built there.” properties in Johor under the JV secured from the regulator. The REIT company Axis AME IP Sdn Bhd, usually matches the timing of – Dato' Stewart LaBrooy, specifically i-Park in Indahpura, placement with new acquisitions to CEO Iskandar. Due to its location, i-Park minimise dilution. Price Close Relative to FBMKLCI (RHS) Financial Summary 3.5 126 123 Dec-11A Dec-12A Dec-13F Dec-14F Dec-15F 3.3 120 117 Gross Property Revenue (RMm) 114.7 133.1 141.0 146.0 151.1 3.1 114 111 Net Property Income (RMm) 97.0 112.5 119.3 123.7 128.0 2.9 108 105 Net Profit (RMm) 68.71 78.04 82.53 86.80 91.04 2.7 102 99 Distributable Profit (RMm) 65.80 84.81 82.53 86.80 91.04 2.53 96 2 Core EPS (RM) 0.17 0.17 0.18 0.19 0.20 2 Core EPS Growth 7.20% 3.52% 5.44% 5.17% 4.88% Vol m Vol 1 1 FD Core P/E (x) 20.17 19.48 18.47 17.57 16.75 Mar-12 Jun-12 Sep-12 Dec-12 DPS (RM) 0.17 0.19 0.18 0.19 0.20 Source: Bloomberg Dividend Yield 5.01% 5.58% 5.41% 5.69% 5.97% 52-week share price range Asset Leverage 24.0% 34.5% 34.3% 34.3% 34.3% 3.34 BVPS (RM) 2.08 2.17 2.20 2.20 2.20 2.62 3.36 P/BV (x) 1.61 1.54 1.52 1.52 1.52 Recurring ROE 8.09% 8.07% 8.29% 8.66% 9.08% 3.68 % Change In DPS Estimates Current Target CIMB/consensus EPS (x) 0.96 0.99 0.93 SOURCE: CIMB, COMPANY REPORTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Sources: CIMB. COMPANY REPORTS Designed by Eight, Powered by EFA Axis REIT March 18, 2013 PEER COMPARISON Research Coverage Bloomberg Code Market Recommendation Mkt Cap US$m Price Target Price Upside Ascendas REIT AREIT SP SG OUTPERFORM 4,575 2.55 2.79 9.3% Axis REIT AXRB MK MY OUTPERFORM 488 3.34 3.68 10.3% Cambridge Industrial Trust CREIT SP SG OUTPERFORM 750 0.77 0.81 5.3% Mapletree Industrial Trust MINT SP SG NEUTRAL 1,815 1.38 1.50 8.4% Mapletree Logistics Trust MLT SP SG NEUTRAL 2,280 1.17 1.20 2.9% Rolling P/BV (x) Rolling Dividend Yield 1.8 30% 1.6 25% 1.4 1.2 20% 1.0 15% 0.8 0.6 10% 0.4 5% 0.2 0.0 0% Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Ascendas REIT Axis REIT Ascendas REIT Axis REIT Cambridge Industrial Trust Mapletree Industrial Trust Cambridge Industrial Trust Mapletree Industrial Trust Mapletree Logistics Trust Mapletree Logistics Trust Peer Aggregate: P/BV vs Asset Leverage Peer Aggregate: Dividend Yield 1.4 37.5% 14% 1.2 36.8% 12% 1.0 36.1% 10% 0.8 35.4% 8% 0.6 34.6% 6% 0.4 33.9% 4% 0.2 33.2% 2% 0.0 32.5% 0% Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Rolling P/BV (x) (lhs) Asset Leverage (rhs) Rolling Dividend Yield Valuation Dividend Yield P/BV (x) P/E (FD) (x) Dec-12 Dec-13 Dec-14 Dec-12 Dec-13 Dec-14 Dec-12 Dec-13 Dec-14 Ascendas REIT 5.48% 5.54% 5.94% 1.31 1.29 1.28 14.59 17.38 16.69 Axis REIT 5.58% 5.41% 5.69% 1.54 1.52 1.52 19.48 18.47 17.57 Cambridge Industrial Trust 6.25% 6.56% 6.86% 1.18 1.19 1.19 10.28 16.88 16.04 Mapletree Industrial Trust 6.46% 6.62% 6.77% 1.36 1.36 1.36 13.63 15.68 15.31 Mapletree Logistics Trust 6.00% 6.14% 6.23% 1.29 1.29 1.29 16.94 16.57 16.30 Growth and Returns DPS Growth Asset Leverage Fully Diluted EPS Growth Dec-12 Dec-13 Dec-14 Dec-12 Dec-13 Dec-14 Dec-12 Dec-13 Dec-14 Ascendas REIT 3.9% 1.0% 7.3% 33.1% 31.3% 34.6% -33.8% -16.1% 4.2% Axis REIT 11.3% -3.0% 5.2% 34.5% 34.3% 34.3% 3.5% 5.4% 5.2% Cambridge Industrial Trust 12.9% 4.9% 4.5% 37.8% 37.9% 38.0% -1.9% -39.1% 5.2% Mapletree Industrial Trust 24.4% 2.4% 2.3% 38.8% 39.6% 39.7% -28.6% -13.1% 2.4% Mapletree Logistics Trust 7.5% 2.2% 1.6% 36.1% 36.5% 36.5% 7.2% 2.2% 1.6% SOURCE: CIMB, COMPANY REPORTS Calculations are performed using EFA™ Monthly Interpolated Annualisation and Aggregation algorithms to December year ends 2 Axis REIT March 18, 2013 BY THE NUMBERS Share price info P/BV vs Asset Leverage Dividend Yield vs Net DPS Share px perf. (%) 1M 3M 12M 1.80 40% 0.20 6.0% Relative 7.1 12.8 20.6 1.60 36% 0.18 5.4% 1.40 31% 0.16 4.8% Absolute 7.1 11.3 23.7 1.20 27% 0.14 4.2% 1.00 22% 0.12 3.6% Major shareholders % held 0.10 3.0% 0.80 18% 0.08 2.4% Employees Provident Fund (EPF) 10.8 0.60 13% 0.06 1.8% 0.40 9% 0.04 1.2% Tew Peng Hwee 6.0 0.20 4% 0.02 0.6% 0.00 0% 0.00 0.0% Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Rolling P/BV (x) (lhs) Asset Leverage (rhs) DPS (lhs) Dividend Yield (rhs) Profit & Loss (RMm) Dec-11A Dec-12A Dec-13F Dec-14F Dec-15F Only factored in organic Rental Revenues 114.7 133.1 141.0 146.0 151.1 growth from rental Other Revenues 0.0 0.0 0.0 0.0 0.0 reversions. Have not Gross Property Revenue 114.7 133.1 141.0 146.0 151.1 Total Property Expenses (17.8) (20.5) (21.7) (22.3) (23.1) included contributions from Net Property Income 97.0 112.5 119.3 123.7 128.0 any new acquisitions. Axis General And Admin. Expenses 0.0 0.0 0.0 0.0 0.0 REIT is planning to buy Management Fees (7.7) (9.6) (10.0) (10.0) (10.0) Trustee's Fees (0.4) (0.5) (0.5) (0.5) (0.5) RM350m in properties this Other Operating Expenses (2.1) (7.0) (2.8) (2.9) (3.0) year EBITDA 86.7 95.4 105.9 110.2 114.4 Depreciation And Amortisation (0.0) (0.1) (0.1) (0.1) (0.1) EBIT 86.7 95.4 105.9 110.1 114.4 Net Interest Income (21.5) (20.9) (23.3) (23.3) (23.3) Associates' Profit Other Income/(Expenses) 3.4 3.6 0.0 0.0 0.0 Exceptional Items Pre-tax Profit 68.7 78.0 82.5 86.8 91.0 Taxation 0.1 0.0 0.0 0.0 0.0 Minority Interests Preferred Dividends Net Profit 68.7 78.0 82.5 86.8 91.0 Distributable Profit 65.8 84.8 82.5 86.8 91.0 Cash Flow (RMm) Dec-11A Dec-12A Dec-13F Dec-14F Dec-15F Pre-tax Profit 68.7 78.0 82.5 86.8 91.0 Expecting 100% dividend Depreciation And Non-cash Adj.