Religare – DBSV

Look out for maiden distribution

• Expect maiden distribution of 8% annualised payout in FY13 results announcement on 21 May
  
• Share price appreciation panning out as expected; still has 8.3% yield and upside to revised TP
  
• Recent drop in Indian bond yields and stable INR positive for RHT
  
• Maintain BUY, TP raised to S$1.06
  

Expect DPU of 3.56 Scts for FYE Mar13. RHT will be reporting its FYE Mar13 results on 21 May. We are expecting a distribution per unit (DPU) of 3.56 Scts, equating to an annualised yield of 8% (since 19 Oct, 2012) at the current price of S$0.985. RHT pays out its distribution half yearly. In its 3Q results released earlier in Feb, RHT reported a distributable income of S$9.4m, translating into a DPU of 1.66 Scts for the period from 19 Oct to 31 Dec, 2012. This was marginally above the projected 1.63 Scts disclosed in its IPO prospectus.

Still provides 8.3% yield. In our initiation report on 28 Nov, 2012 (“Good bargain at 10% yield”), we had indicated that there will be rising confidence on RHT as it approaches May 2013 with the first distribution announced. So far, RHT has appreciated by c.25% panning out as per our expectations. Despite this, RHT still provides an attractive 8.3% yield for FY14F; and, does not include the 3.56 Scts we expect for FY13F.

Conditions working in RHT’s favour. Currently, conditions seemed favourable for RHT: (i) Indian bond government bond yields have fallen to 7.4%, from 8.3%, arising from RBI rate cuts and lower WPI; (ii) cross rate of SGD/INR has remained relatively stable at c.INR44/SGD. This possibly provides an opportune time for RHT to further hedge its distribution beyond FYE Mar 14, providing assurance to unit holders.

Maintain BUY, TP raised to S$1.06. We raised our DDM-based TP to S$1.06 (from S$0.97 previously) as we roll our valuations over to FY14F (from FY13F) and a lower cost of equity at 11.6% (from 11.8% previously, due to a lower risk-free rate). At our TP, the implied yield is 7.8%, a 200 bp spread over the Indian Government 10-year bond yield (post tax) and about 170 bp to 400 bp over selected peers.