Religare Health Trust - CIMB Research 2015-12-09: Twin engines of growth

Religare Health Trust - CIMB Research 2015-12-09: Twin engines of growth RELIGARE HEALTH TRUST RF1U.SI 

Religare Health Trust - Twin engines of growth 

  • Long portfolio WALE to provide earnings visibility. 
  • High portfolio occupancy of 80% and robust ARPOB to underpin earnings. 
  • Development and AEI activities to drive near-term growth. 
  • Acquisition of new land should expand Mohali operations in the longer run. 
  • Maintain Hold with DDM-backed target price of S$1.06. 

■ Long WALE provides income visibility 

  • RHT’s portfolio comprises 12 clinical establishments, four greenfield projects and two operating hospitals, with a total operating capacity of 2,644 beds and that are valued at S$991m. 
  • RHT’s properties have a long portfolio WALE that averages 12 years with the operator. This provides the trust with good earnings visibility. 

■ Steadily growing in 2QFY16 

  • In 2QFY16, portfolio occupancy averaged a higher 80% (vs. 74% a year ago) while ARPOB grew 2.2% yoy. 
  • At the same time, the number of operational bed capacity rose 3.7% to 2,644. This helped to underpin revenue growth of 10% to S$35.6m while net service fee and hospital income improved a better 6.5% yoy. 
  • At the bottomline, distributable income rose a higher 8.8% yoy, thanks to a more favourable Rs/S$ exchange rate of 50.27. 

■ Development activities to drive growth 

  • RHT has a number of development activities and AEIs planned that will bear fruit over the next two years. These include adding a total of 150 beds for the Jaipur, Mulund and Nagarbhavi CE, at a capex cost of S$5.7m. 
  • In 2017, the addition of 142 beds at Amritsar and Noida CE, and the opening of the Ludhiana Greenfield and BG Road Brownfield CE with a total capex of S$56.4m, should further boost bed capacity. 
  • When completed, we expect these developments to propel double-digit fee income growth in rupee terms. 

■ Expanding Mohali operations 

  • The trust has recently won the bid for a piece of freehold land slated for hospital use offered by the Greater Mohali Area Development Authority via a public auction for Rs73 crores (S$15.7m). This will enable RHT to expand the capacity of its existing Mohali CE by another 500 beds vs. 355 units at present. This should allow the trust to further extend its income visibility. 
  • We have not factored in any impact from this development, as no timeline nor projected capex cost has been indicated as yet, 

■ Maintain Hold 

  • We like RHT’s growth profile and healthy balance sheet with a gearing of 23.9% (estimated including the latest Mohali acquisition). 
  • However, its projected FY16 DPU yield of 7.9% is in line with the S-REIT average. 
  • Hence, we maintain our Hold rating with a DDM-based target price of S$1.06.

LOCK Mun Yee CIMB Securities | 2015-12-09
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.06 Same 1.06