Ready for acquisition
- FIRT’s 2Q/1HFY15 DPUs were broadly in line at 24%/47% of our full-year forecast.
- The quarterly results were boosted by acquisitions but marginally impacted by higher costs.
- We continue to like FIRT for its strong inorganic growth potential driven by its asset pipeline from its sponsor, healthy gearing at 32.9%, and the recently proposed increase in regulatory gearing limit to 45%.
- We maintain our Add rating, with a slightly higher DDM-based target price of S$1.51 (from S$1.48)(discount: 7.8%) as we roll-forward our estimates and make minor tweaks to our FY15-17 DPUs.
- Yield-accretive acquisitions are potential re-rating catalysts.
2QFY15 boosted by acquisition
- FIRT’s 2Q/1HFY15 DPUs were broadly in line at 24%/47% of our full-year forecast.
- 2Q gross revenue grew 8.5% yoy, largely due to acquisition and higher contributions from Indonesia and Singapore properties.
- Property operating expenses, however, was up by 19% on the back of higher property tax, building audit fees, and legal fee incurred for lease renewals.
Strong inorganic growth potential
- We continue to believe that FIRT has strong inorganic growth potential.
- The REIT’s sponsor, Lippo Karawachi, has been actively developing more hospitals in Indonesia and currently has a strong pipeline of 46 hospitals.
- FIRT owns 11 hospitals operated by Siloam Hospitals and has the right of first refusal (ROFR) over Lippo Karawachi’s hospital assets.
- We believe the recently proposed increase in regulatory gearing limit to 45% is a positive for FIRT, which is currently healthily geared at 32.9%, as this increases FIRT’s debt headroom by S$229m.
- FIRT has a proven acquisition track record in Indonesia, which has been yield-accretive to shareholders.
Maintain Add
- We maintain our Add rating.
- FIRT’s FY15/16F dividend yield of 6.1%/6.2% is only slightly lower than S-REITs average of 6.6%/6.9% despite its more stable earnings profile profile.
- We believe the potential yield-accretive acquisitions from its sponsor will be a strong re-rating catalyst, especially after the proposed increase in regulatory gearing limit.
(TAN Xuan, CFA; PANG Ti Wee; LOCK Mun Yee)
Source: http://research.itradecimb.com/
