Religare – DBSV

A positive start

• DPU of 1.66 Scts vs forecast of 1.63 Scts; distributions are paid semi-annually with first payment expected in May 2013
  
• Net property income margins tracking above forecast
  
• Despite rising 14% since our initiation on 28 Nov 12, RHT still offers c.9% yield
  
• Maintain BUY, S$0.97 TP for c.16% total return
  

Highlights

DPU of 1.66 Scts, marginally higher than IPO forecasts. RHT reported a distributable income of S$9.4m. This translates into a DPU of 1.66 Scts for the period from 19 Oct 12 to 31 Dec 12, which is marginally above the projected DPU of 1.63 Scts disclosed in its IPO Prospectus. This was achieved on the back of higher hospital income and lower expenses as a result of tighter cost management. Distributions will be paid semi-annually, hence the first distribution will be made sometime in May 13, post its FY13 results announcement.

Net property income margins tracking above forecast. Margins came in at 57.5%, c.1ppt above the forecast. This was due to lower operating expenses from a lower variable fee and tighter cost control. The variable fee recorded was S$4.12m, about 5% lower compared to its IPO forecast of S$4.3m. This was mainly due to lower operating income recorded by Fortis during the festive period in Oct and Nov.

Our View

Yield still attractive at c.9% despite share price rise. Despite share price appreciating by c.14% since our initiation on 28 Nov12, RHT still offers attractive yields of 8.8%/ 9.1% for FY13F (annualized)/ FY14F. Over the medium term, we continue to 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 (c.7%).

Recommendation

Maintain BUY, TP: S$0.97. We maintain our DDM-backed TP at S$0.97 (cost of equity: 11.8%; t=3%). Coupled with a prospective yield of c.9%, RHT still offers a total return of c.16%.