RHT Health Trust - 3QFY17 Results in line
- 3QFY17 core DPU was dragged by lower payout, smaller stake in FHTL and higher tax expense. 9MFY17 core DPU of 4.83 Scts was in line at 85% of our FY17F.
- The greater number of higher-yield cardiology and orthopaedic cases in 3QFY17 was partly offset by the demonetisation policy in India.
- New developments in Ludhiana and BG Rd Bengaluru are on track to completion in Mar/Apr 17.
- Gearing of 19.9% provides headroom for capex and potential acquisitions.
- Maintain Hold with unchanged TP of S$0.89.
3QFY17 results highlights
- RHT reported 3QFY17 total distribution of 26.05 Scts, inclusive of a 24.8 Scts special distribution from the divestment of its 51% interest in FHTL, completed on 12 Oct 16.
- Stripping out the one-off gain, 3QFY17 DPU of 1.25 Scts was 34.5% lower than a year ago due to the lower payout ratio of 95%, income vacuum from the smaller stake in FHTL and corporate tax expense for a subsidiary.
- For 9MFY17, core DPU of 4.83 Scts made up 85% of our FY17 forecast, in line with expectations.
Bigger proportion of higher-yield cases offset by demonetisation
- Stripping out effects of the smaller FHTL stake, 3QFY17 revenue of S$23.1m rose 1% yoy, led by improved service fees, partly offset by lower hospital and other income.
- Increased volume of higher-value cardiology and orthopaedic cases was offset by the introduction of the demonetisation policy in India on 8 Nov 16. Thus, portfolio occupancy dipped to 75%, although Average Revenue per Operating Bed (ARPOB) was stable at INR14.17m.
Completion of new bed capacity to boost income stream
- Looking ahead, the 279 new beds (10.5% of total operating capacity) at the Ludhiana and BG Road Bengaluru projects are still scheduled for completion in Mar/Apr 17. When operational, these beds are likely to contribute positively to bottomline.
- Management has earmarked the additional capacity for oncology treatments (BG Road) and mother & child programmes (Ludhiana). These higher-yield services should boost ARPOB when stabilised.
Low gearing provides debt headroom for acquisitions
- RHT’s gearing stood at 19.9% at end-Dec 16. We estimate this ratio will rise to c.26.6% post-completion of its asset enhancement projects.
- Given its optimal gearing target of 30.35%, the trust still has headroom to fund any potential acquisitions, including thirdparty assets, via debt.
- We maintain our Hold call with an unchanged DDM-based target price of S$0.89.
- At the current share price level, we think most of the upcoming asset enhancement and development activities have been priced in.
- While we continue to like the growing Indian healthcare sector, we think potential key catalysts for RHT’s share price performance are new investments to expand the business and strengthening of the Rupee.
- A key risk is government policy changes.