RHT Health Trust - CIMB Research 2017-11-15: Offer From Fortis To Buy All Of RHT’s Assets

RHT HEALTH TRUST RF1U.SI

RHT Health Trust - Offer From Fortis To Buy All Of RHT’s Assets

RHT Health Trust's 2Q/1HFY3/18 DPU were in line with expectations, making up 23.8%/49.5% of our FY18 forecast.
The higher occupancy was somewhat offset by lower per-bed revenue.
RHT has received a proposed offer from Fortis to acquire all of its assets
Maintain Hold with an unchanged TP of S$0.92.

RHT Health Trust reported a 4% increase in 2QFY3/18 revenue to S$24.3m thanks to the contractual 3% hike in base fee, higher hospital and other income. This was partly offset by a decline in variable fee due to lower average revenue per occupied bed (ARPOB).
Distribution income was S$9.7m (DPU: 1.138 Scts) or 23.8% of our FY18 projections. However, with the just-announced proposal from Fortis to acquire the entire asset portfolio of RHT Health Trust, the Trustee-Manager has not declared a distribution for 1HFY3/18.

In terms of operations, the trust enjoyed a higher occupancy of 77% in 2Q vs. 72% in 1Q. However, ARPOB came in 7.8% lower qoq to Rs14.17m due to a decrease in the number of high-value specialty cases, accompanied by a rise in dengue and viral-related medical cases.

During the quarter, RHT added 24 beds to its operating portfolio, at the Shalimar Bagh, New Delhi and Kalyan, Mumbai hospitals, to reach a total 2,748. It is still on track to add a further 339 beds at BG Road, Ludhiana Noida and Mulund clinical establishments by end-FY18. This should expand its operational portfolio capacity by 12-13% yoy.

RHT announced it has received a proposal from Fortis to acquire all the assets of RHT. The Trustee Manager has entered into a 60-day exclusive negotiation period.
According to Fortis, the consideration of Rs46.5bn includes RHT’s debt of Rs11.52bn and is subject to fees accrued and closing adjustments. This translates to c.S$0.90/RHT share, at the current exchange rate (Rs48.14:S$1). This equates to c1.08x the current BV of S$0.835.
RHT has appointed Merrill Lynch (Singapore) as the exclusive financial adviser.

Fortis currently owns 29.76% of RHT and has secured an enabling solution to raise up to Rs50bn. It has been in active dialogue with financial and strategic investors, supported by Standard Chartered Bank, its financial adviser.
The transaction is subject to RHT obtaining the approvals from the Board of Directors of the Trustee Manager, Unitholders, lenders and noteholders as well as regulatory and other third-party approvals.

We leave our FY18-20F DPU estimates unchanged and maintain our Hold rating and DDM-based TP of S$0.92 pending more details on the above transaction.
Downside risks could include a longer than expected acquisition growth catalyst.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-11-15

CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 0.920 Same 0.920