PLife – CIMB

The dust has settled…what next?

We caught up with management post the listing of IHH. Discussions revealed that management has grown more positive and is gearing up for acquisitions, particularly in Malaysia. A new asset-recycling initiative in Japan strengthens long-term organic growth.

We defer the bulk of balance acquisition projections to 2013, lowering FY12-13 DPU estimates, but peg 2% growth to its Japan portfolio. DDM target price rises on lower 7% disc. rate (7.4% previously) as we align risk premium to peers. The stock now trades at 5% yield and 30% premium over book; downgrade from Outperform to Neutral.

First entry into Malaysia

Having raised Australia and Malaysia as potential markets, management took its maiden step into Malaysia through a small S$6.45m acquisition, completed Aug 2012. We expect further acquisitions of Malaysian hospitals (priced at bite-size amounts of S$10m-30m each, from 3rd party or IHH) and believe total c.S$200m of acquisitions will provide DPU uplift of c.4%. Despite almost S$250m headroom to 45% gearing, we note flexibility for mixed funding as the gap between debt and equity funding has narrowed.

Portfolio still going strong

Outside of acquisitions, we estimate 2-4% minimum DPU growth on CPI-pegged leases of Singapore hospitals (60% of rev) alone. In Japan, management unveiled AEI collaboration with operator, paving the way for further enhancements and a new asset-recycling initiative. We view the latter as a compelling strategy for long-term growth as PLife monetises mature and non-core assets, which are replaced by pipeline assets with more growth potential.

On a portfolio basis, medium- to long-term plans include an increase in exposure to revenue-sharing arrangements to capitalise on strong growth in healthcare markets. With a significant proportion of portfolio on CPI-pegged leases, the shift mitigates future normalisation of CPI rates.

Premium valuations

We like PLife for its defensiveness and remain confident of accretive acquisitions. We see PLife as a good yield-play complement to IHH’s growth story. That said, the market has rewarded the stock with a handsome defensive premium, in our view. At 30% premium over book and yield compression to 5%, we struggle to see significant upside. Earlier-than-expected acquisitions will be a re-rating catalyst.