RHT Health Trust - DBS Research 2017-02-07: Resetting post FHTL sale

SGinvestors.io

RHT HEALTH TRUST RF1U.SI

RHT Health Trust - Resetting post FHTL sale

• 3Q17 DPU (excl special div) fell 34% y-o-y post sale of Fortis Hospotel Limited (FHTL) and impact from demonetisation. 
• Management turns cautious as impact from demonetisation to persist. 
• Cashflow forex hedging policy to reduce to 50%. 
• Reduce TP to S$0.85 on lower DPU.

Sale of FHTL yet to be fully priced in. 

• We maintain a HOLD rating but lower our TP to S$0.85 to factor in the sale of FHTL (Fortis Hospotel Limited, owner of Gurgaon Clinical Establishment and the Shalimar Bagh Clinical Establishment).
• While we are positive on RHT Health Trust (RHT)’s expansion plans in the long term and exposure to the growing demand for healthcare services in India, we believe the loss of income from the sale of FHTL has yet to be fully priced in.

Weak 3QFY17 DPU post sale of FHTL and demonetisation impact. 

• RHT’s 3Q17 DPU (excl special dividend) fell 34% y-o-y to 1.25 Scts post the sale of its 51% interest in FHTL. 
• Based on a comparable 3QFY16 DPU, 3Q17 DPU fell 14% y-o-y largely impacted by demonetisation policy which affected hospital income and occupancy rate despite higher ARPOB.
• Management expects the impact to continue to be felt in 4Q17 as the full impact from the implementation was only felt in Jan 2017. 
• In addition, management has reduced its cashflow forex hedging policy to 50% in its Dec17 hedging contract.

Debt headroom to support development initiatives. 

• Despite the rise in gearing post FHTL sale, RHT still has ample debt headroom of S$314m (27% gearing as at end-Dec16). This is among the lowest in the S-REIT/property business trust space.
• This allows RHT to easily support its expansion plans and/or pursue accretive acquisitions including 
  1. ongoing development projects at BG Road and Ludhiana, adding 279 beds by FY17/18, and 
  2. planned asset enhancement initiatives at various clinical establishments, adding 292 beds over FY18/19.

Valuation

• We lower our DDM-based TP to S$0.85 (from S$0.95) on lower FY17F - FY19F DPU (ex-special dividend) of 5.4 Scents to 6.2 Scents (from 8.3 Scents to 9.5 Scents) to factor in FHTL sale.

Key Risks to Our View

• The key risk to our neutral stance is stronger than expected earnings and/or INR. 
• Additional upside could also arise from acquisitions.

Rachel TAN DBS Vickers | Derek TAN DBS Vickers | http://www.dbsvickers.com/ 2017-02-07

DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.85 Down 0.950