RHT Health Trust - CIMB Research 2017-08-04: Good Start To A New Year

RHT Health Trust - CIMB Research 2017-08-04: Good Start To A New Year RHT HEALTH TRUST RF1U.SI

RHT Health Trust - Good Start To A New Year

  • RHT Health Trust's 1QFY3/18 DPU in line, accounting for 26% of our FY18 forecast.
  • Boosted by a higher base and variable revenue, thanks to higher ARPOB.
  • Added 73 operational beds to portfolio.
  • Healthy gearing at 23%.
  • Maintain Hold with a higher DDM-based target price of S$0.92.

1QFY18 results highlights 

  • RHT’s 1QFY3/18 DPU of 1.23 Scts came in 32% lower yoy but 9% higher qoq due to the divestment of its 51% stake in Shalimar Bagh and Gurgoan CEs in Oct 16 as well as the adoption of a smaller income payout ratio of 95%. Excluding the sale, on a like-for-like comparison, DPU dipped a smaller 4.7% yoy. 
  • RHT also benefited from a stronger rupee in 1QFY18 (vs. 4QFY17), partly offset by an increase in professional fees for financing-related activities and higher taxes incurred by its associate.

Benefiting from higher base and variable revenue 

  • 1QFY18 total revenue rose 9.7% yoy to S$22.6m, thanks to the contractual annual 3% uplift in base fee as well as higher variable income due to increased volume of higher end medical treatments. As a result, average revenue per operating bed (ARPOB) improved 8% yoy even as occupancy dipped 4% pts yoy to 72% due to an increase in bed capacity and the lingering impact of the demonetisation policy. 
  • The net service fee margin dipped slightly to 44.6% (vs. 45.2% previously) due to an increase in medical consumables cost.

Boosted operational bed capacity by 2.8% in 1Q 

  • During the quarter, the trust added 73 operational beds to its portfolio, including the newly-completed Jaipur CE, which offers 59 additional beds with mother-and-child and orthopaedics programmes. This is part of the trust’s target to increase operational bed capacity by 15% or 395 beds for FY18F. 
  • Other developments scheduled for completion in FY18 include the BG Road, Ludhiana and Noida projects.

Low gearing of 23% 

  • RHT’s gearing stood at 23% as at end-1QFY18. Inclusive of the capex required to complete the asset enhancements projects, gearing was still healthy at 28%. 
  • Given its optimal gearing target of 30-35%, the trust has headroom to fund any potential acquisitions, including third party assets, via debt.

Maintain Hold 

  • We adjust our FY18 and FY19 DPU estimates to reflect the reduced income base following the sale of the 51% stake in the Shalimar Bagh and Gurgoan CEs to Fortis Healthcare. 
  • We also introduce our FY20 DPU estimate and roll forward DDM assumptions. Hence, our TP rises to S$0.92. We maintain our Hold rating as we await inorganic growth catalysts. We continue to like the fast growing India healthcare market.
  • Downside risks include the prolonged impact of GST on the Indian healthcare market.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-08-04
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 0.92 Up 0.890