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%.

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.

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.

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.

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.

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