RHT Health Trust - CIMB Research 2016-08-03: Special distribution on the cards

RELIGARE HEALTH TRUST RF1U.SI

RHT Health Trust - Special distribution on the cards

1QFY17 DPU of 1.79 Scts was slightly below at 22% of our FY17 forecast due to forex impact and lower payout ratio.
Operating metrics strong, 5.6% growth in ARPOB and 4% pt occupancy uptick.
Divestment of 51% stake in Gurgaon and Shalimar Bagh CEs should realise 24.4 Scts special cash distribution to unitholders.

RHT reported flat 1QFY17 revenue of S$35.4m. This was largely due to forex translation impact – topline was up 5% in Rs terms.
Performance was underpinned by higher ARPOB and occupancy.
Distribution income fell 2% yoy to S$15.1m due to forex impact and a higher effective tax rate of c.31% (vs. 25% in pcp) with additional corporate tax of S$1.2m from one of its subsidiary.
RHT has adopted a 95% payout ratio and this translates to a DPU of 1.79 Scts for 1QFY17.

Base fee accounted for 67% of total service fee while variable income made up the remaining 33%. The bulk of the 5.1% service fee expansion was derived from a 5.6% improvement in ARPOB to Rs14.23m while portfolio occupancy ticked up 4% pt yoy to 76%.
In addition, there was a slight 1% increase in the number of operational beds to 2,629 in FY16, which should contribute positively in FY17.

RHT had recently obtained unitholders’ approval for the disposal of a 51% economic interest in Fortis Hospotel Ltd, which holds the Gurgaon and Shalimar Bagh assets. This transaction is expected to generate a one-time special cash distribution of S$202.8m (24.4 Scts) which will be distributed back to unitholders. This translates to an IRR of 14.5%. RHT will continue to hold a 49% interest in these two assets post divestment.
We have revised our FY17 estimates to reflect this exercise.

Additionally, we think the incremental 279 new beds (11% of total operational capacity) at the BG Bengaluru and Ludhiana projects towards 2HFY17 should underpin forward earnings growth. BG Bengaluru CE was 75% occupied at end-FY16, and would benefit from additional beds to cater to higher value add oncology treatments. This should help grow ARPOB at the facility when the new capacity is fully operational and stabilised. The Ludhiana CE is a 79 bed facility catering to mother and child specialisations.

We adjust our FY17/FY18 DPU by +271%/-32% to reflect the divestment gain and RHT’s smaller 49% ownership of the two properties. As such, our DDM-based TP rises to S$1.11, and we upgrade our call to Add.
RHT offers investors exposure to the rapidly growing Indian healthcare market. Post transaction gearing of 32-33% will offer more headroom to tap inorganic growth potential.
RHT has also hedged its rupee income till Jun 17 at Rs49.35-52.03.
Key risk to our call is further depreciation of the Rs/S$.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-08-03

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