PLife – DBS

Stable earnings

Comment on Results
2Q and 1H FY08 results were within expectations. 2Q gross revenue was S$12.49m, exceeding its IPO forecast by 8.8%. Singapore hospitals contributed S$11.97m gross revenue, while its three Japanese assets that were acquired in May contributed S$0.5m. Total expenses was S$2.92m, 22% higher than forecast due to higher contribution expenses for management & sinking fund for Mt Elizabeth Hospital, and higher trust level expenses following the addition of the Japan properties. 2Q net property income (NPI) was S$11.7m. DPU for 2Q is 1.66 Scts. Ex-date is 31 Jul and payment is expected on 27 Aug.

1H gross revenue and NPI are make up 49.7% and 47.7% of our full year forecasts. We expect PREIT to meet our forecasts with full contribution from its three Japanese assets in 2H.

Recommendation

Portfolio valued at S$902.2m. This includes its three assets in Japan – a pharmaceutical products distributing and manufacturing facility and two nursing homes. Singapore accounts for 92% of total assets, and Japan the rest.

Low gearing of 10% offers room for more debt funded acquisitions – it can borrow up to S$570m before reaching its 45% target gearing level. We are expecting more acquisitions as management has indicated its ambition to grow asset base to S$1.6bn.

Maintain Buy, TP S$1.35 based on DCF (WACC: 6.3%, Terminal growth: 1%). With Jun CPI soaring to 7.5%, MAS recently raised 2008 CPI forecast to 6%–7%. We like PREIT in today’s inflationary environment because its Singapore hospital gross revenue is pegged to the higher of adjusted hospital revenue or 1%+CPI. We have assumed CPI of 6.4% for 2008 in our forecasts. At current price of S$1.12, PREIT offers attractive net dividend yield of 6.1% and 6.4% for FY08F and FY09F, respectively.