RHT – DBSV

Good bargain at 10% yield

• Initiating coverage with BUY for 10% yield
  
• Exposure to fast growing Indian healthcare sector (15% CAGR), backed by Fortis
  
• 96% of assets are operational; distribution income hedged till FY14F, providing assurance in meeting DPU forecasts
  
• Confidence to build up as management delivers, particularly with announcement of maiden distribution end FY13
  

Buy for 10% yield and c.20% upside to S$0.97 TP. We initiate Religare Health Trust (RHT) with BUY, TP of S$0.97. This is an overlooked stock, which offers exposure to the fast growing Indian healthcare market, projected to be 15% CAGR (10-15F) by Frost & Sullivan. RHT, a business trust, has initial 17 assets (13 are operational), which we estimate should enable unitholders to enjoy distribution yields of c.10% at the current price.

Structured to offer upside potential. RHT derives its revenue from service fees payable by Fortis Healthcare, a leading integrated healthcare services provider in India, through base and variable fees. Variable fees are calculated at 7.5% of operating revenue, rather than profits. This provides upside potential as Fortis continues its growth trajectory on the back of increasing average revenue per bed, occupancy and bed capacities. Over the medium term, we believe DPU could be further enhanced as its greenfield clinical establishments come onstream, coupled with inorganic growth through acquisitions to leverage on its current low gearing (at c.7%).

A good bargain, BUY for >30% upside. DDM-backed TP is S$0.97 (CoE: 11.8%, t=3%). The c.10% yield looks very attractive compared to peers trading at yields of 6.8%-8.4%. Currently, 96% of its assets are operational and its distribution income hedged in SGD till end FY14F, giving greater assurance in meeting our DPU forecasts. We see confidence rising as management delivers, with the first distribution (end FYE Mar’13) as a key catalyst. BUY for >30% total return upside. A key risk is the weakening of INR vs SGD; and, we estimate a 1% depreciation will impact DPU by c.1%, all else constant.