RHT Health Trust - CIMB Research 2016-11-12: All in the price, for now

RHT HEALTH TRUST RF1U.SI

RHT Health Trust - All in the price, for now

2Q/1HFY17 figures restated post divestment, weaker forex drag on yoy performance.
Better operating performance led by higher occupancy and bed capacity.
Two new developments in the pipeline, potential 10.5% hike in bed capacity from FY18.
Adjusted gearing, post divestment, is below optimal level, room to fund new acquisitions.

Downgrade to Hold on limited current upside. Revised target price at S$0.89.

RHT has restated its 2Q/1HFY17 numbers to reflect the impact of divestment of FHTL.
Gross revenue for 2QFY17 was 1% lower yoy at S$23.3m due to a 5% depreciation of the rupee.
In local currency terms, topline grew 4% yoy, with improvements from both the base and variable fee. The adverse forex impact was also felt at 2Q distribution income level, which recorded a 2.7% decline to S$15.2m.
DPU of 1.81 Scts is based on a 95% payout ratio (vs 2QFY16: 1.96 Scts, 100%).

The better operating performance, in local currency terms, was due to higher ARPOB to Rs14.16m and increased occupancy of 84% (vs 80% in the previous period) thanks to an increase in the number of cardiac, viral fever and dengue cases.
There was also a slight 0.8% qoq growth in the number of operating beds to 2,651.

Looking ahead, the 279 new beds (10.5% of total operational capacity) at the Ludhiana and BG Rd Bengaluru projects are still scheduled to complete in Mar 2017. When operational, these new beds are likely to contribute positively to the bottomline, in our view.
The additional capacity is targeted to be used for oncology treatments as well as mother & child programmes. These higher yielding services should help boost ARPOB when stabilised.

Post divestment, RHT’s adjusted gearing ratio is expected to be at c24% compared to its optimal target of 30-35%. This provides the group with debt headroom for new investment opportunities, including third party assets.
Meanwhile, RHT intends to change its currency hedging policy from 100% of rupee-denominated cashflows to 50% from FY18 onwards.

We lower our call to Hold with a revised DDM-based TP of S$0.89, after excluding the special distribution of 24.8Scts.
Share price is trading 10% higher than the theoretical ex-distribution price of 81Scts and we think much of the identified forward asset enhancement and development has been priced in.
While we continue to like the growing Indian healthcare sector, we think a key catalyst for stock performance would be new investments to grow its business and asset base.
Key risk is a volatile rupee.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2016-11-12

CIMB Research SGX Stock Analyst Report HOLD Downgrade ADD 0.89 Same 1.110