CIMB Research 2015-07-21: First REIT - Ready For Acquisition. Maintain ADD.

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/




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