PLife – CIMB

Factoring in acquisitions

• Maintain Outperform; target price raised to S$1.49 (from S$1.31). We have increased our target price for PLife to S$1.49 from S$1.31, still based on DDM valuation (discount rate 7.2%). We now assume S$250m worth of acquisitions in 2010 (from zero previously). We also increase our cost-of-debt assumption to 3.5% from 3.1%, and roll our target price forward by one year. Our DPU estimates rise by 5-14% for FY10-11. We prefer PLife to Frasers Centrepoint Trust in the short term. Although both could potentially benefit from near-term acquisition catalysts, the likelihood of full debt funding for PLife would make its acquisitions more DPUaccretive, while we anticipate some equity funding by FCT. PLife is also cheaper at 0.89x P/BV vs. FCT’s 0.95x P/BV.

• We believe acquisitions will materialise soon, as the spreads between the cap rates of healthcare assets in the region and dividend yields as well as cost of equity widen, making DPU-accretive acquisitions highly possible. Ample credit facilities and debt headroom point to full funding by debt, rather than equity.

• Buying third-party assets in Japan and Australia more likely than buying from sponsor. Although sponsor Parkway Holdings has a large pipeline of assets, we expect these to be ready only after 2011. On the other hand, cap rates of healthcare assets in Japan and Australia look attractive.