RHT – CIMB

Stable growth continues

3Q DPU was largely in line at 26% of consensus and our full-year forecasts. 9MFY3/14 DPU formed 77% of our FY14 forecast. We factor in the updates on various project developments and a lower long-term exchange rate of Rs52:S$ (previously Rs51:S$), lowering FY14-16 DPUs by 1-4%. Stability of RHT’s rupee revenue is supported by its base service fee which we estimate to make up c.70% of FY14-15 revenue, but forex remains a key concern. We maintain our Add rating with a slightly reduced DDM-based target price of S$0.91. Potential catalysts include surprises in ARPOB and earnings delivery.

ARPOB grew qoq

Total revenue grew by 1.3% qoq due to higher hospital income. Operationally, the average ARPOB in rupee terms improved by 5.1% qoq despite a lower occupancy of 78% compared to 86% in 2QFY14. Mulund’s price increment and Kaylan’s Cardiology income and bypass surgeries contributed to the growth. We view this as a return to the norm as 2QFY14 occupancy and ARPOB were affected by increased common communicable diseases which require longer stays but generate lower income.

Update on project developments

Aside from the 3QFY14 results, RHT provided an update on the status of various projects within its portfolio. In 2013, the launch of Gurgaon and the completed expansion works at selected clinical establishments increased its installed bed capacity by 574 beds. The BG Road and Ludhiana projects are targeted to complete and commence operations in 2016, and expected to increase its installed bed capacity by 549. The Amritsar and Noida expansion works were put on hold and selected greenfield projects were delayed. The net impact on its FY14-16 DPU is expected to be c.-1%.

We maintain an Add rating

The anticipated Mohali acquisition was announced in the quarter, but we believe its net impact will be reduced by higher-than-expected funding costs. We expect RHT’s underlying assets to continue generating healthy ARPOB, and organic growth in FY15 as Gurgaon starts to contribute variable service fees and its first full-year base service fee. RHT’s FY14 dividend yield of c.10% remains high compared to S-REIT’s/BT’s simple average of 7.3%.

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