RHT – CIMB

Indian healthcare exposure

Sponsored by Fortis Healthcare, the second largest hospital chain by revenue in India, RHT will be the first SGX-listed trust to offer unique exposure to the growing Indian healthcare market. We see long-term growth underpinned by capacity expansion and ARPOB increases.

We initiate coverage with Outperform and DDM-based target price of S$0.95 (discount rate: 12.4%). Forward yields of 9.7-10.0% (for ordinary unit-holders) are among the highest within the Singapore market and are attractive against listed peers. We expect catalysts from earnings delivery and execution.

Unique Indian healthcare exposure with Fortis

With 17 assets valued at INR32.6bn (S$748m), RHT will be the first SGX-listed business trust to offer exposure to the Indian healthcare market. Frost & Sullivan expects the Indian healthcare market to grow at a 15% CAGR by 2015, thanks to favourable demographics, rise in both insurance penetration and medical tourism, and a chronic shortage of beds. We expect RHT to tap into this growth, alongside sponsor Fortis, the second largest healthcare operator by revenue in India.

Long-term growth embedded in portfolio

Growth is embedded in RHT’s portfolio. With 1,782 operational beds as at end-Jun 12, its portfolio can ramp up by 79% without expansion and a further 44% when all stages of development are completed. Net revenue on selected RHT assets had grown by 10-36% in FY12. We expect growth to remain sustainable given supply gaps at certain states where RHT’s assets are located and rising beds, occupancy, and ARPOB as assets mature.

Downside protection; upside potential

RHT’s service fee revenues and terms are structured for stability and upside potential. Stability is anchored by its long 15+15 year terms for most assets, and a fixed base fee which would grow at 3.0% p.a. and underpin >70% of service fees revenue in FY13-14. Upside comes from the variable fees tied to 7.5% of underlying assets’ operating revenues.