PLife – CIMB

Delivering another good quarter

3Q12 was a strong quarter, backed by rent increases in CPI-pegged leases for Singapore hospitals. Persistent inflationary pressure will continue to underpin growth, with acquisitions to top it off. The stock has been accordingly rewarded with premium valuations.

3Q DPU was 26% of our and consensus FY12 estimates while 9M12 made up 76%, in line with expectations. We adjust DPUs for lower interest expense and raise our DDM-based target price after rolling over to FY13 and lowering our discount rate from 7% to 6.7%. Maintain Neutral on account of its premium valuations.

Strong quarter

3Q12 was stronger due to the commencement of new lease terms at Singapore hospitals as CPI-pegged leases meant stronger rental growth for Aug 2012-Aug 2013 (Aug 11: +5.3%; Aug 12: +6.31%). DPU of 2.58 Scts was up 7.1% yoy, after retaining S$0.75m to fund capex. NPI grew 9.5% yoy, led by rental contributions from three Japan properties acquired in Mar 2012, rent increase at Singapore hospitals and two months’ contributions from units at Gleneagles Medical Centre KL.

Going forward

Organic growth will continue to be driven by CPI-pegged leases for Singapore hospitals. Factoring in 2012 and 2013 house estimates for CPI growth (2012: 4.7%), we expect the next lease term to see another rent increase in the range of 5.0-5.5% and ~4% the year after. We maintain expectations of further acquisitions in Malaysia and stronger organic growth from Japan as management implements its asset-recycling initiative over the long run. We factor in CPI growth, S$150m of acquisitions and peg 2% growth to the Japan portfolio for new initiatives. Gearing of 36.4% leaves room to increase debt by S$229m to 45%.

Neutral on valuations

We like the stock as an inflation hedge given persistent inflationary pressure on the back of elevated core CPI and lofty asset prices but struggle to see further upside with yield compression to <5% and >40% premium over book.