SINGAPORE (Aug 7): CIMB is maintaining its “hold” rating on RHT Health Trust as it continues to like the fast-growing India healthcare market but is holding out for inorganic growth catalysts.
To recap, RHT’s 1Q DPU of 1.23 cents came in 32% lower y-o-y but 9% higher q-o-q due to the divestment of its 51% stake in Shalimar Bagh and Gurgoan CEs on Oct 16 as well as the adoption of a smaller income payout ratio of 95%.
Excluding the sale, on a like-for-like comparison, DPU dipped a smaller 4.7% y-o-y. RHT also benefited from a stronger rupee in 1Q18 compared to 4Q17, partly offset by an increase in professional fees for financing-related activities and higher taxes incurred by its associate.
During the quarter, RHT Health Trust added 73 operational beds to its portfolio, including the newly-completed Jaipur CE, which offers 59 additional beds with mother-and-child and orthopaedics programmes.
This is part of the trust’s target to increase operational bed capacity by 15% or 395 beds for FY18F. Other developments scheduled for completion in FY18 include the BG Road, Ludhiana and Noida projects.
To recap, 1Q18 total revenue rose 9.7% y-o-y to $22.6 million, thanks to the contractual annual 3% uplift in base fee as well as higher variable income due to increased volume of higher end medical treatments.
As a result, average revenue per operating bed (ARPOB) improved 8% y-o-y even as occupancy dipped 4 ppt y-o-y to 72% due to an increase in bed capacity and the lingering impact of the demonetisation policy. The net service fee margin dipped slightly to 44.6% -- compared to 45.2% previously -- due to an increase in medical consumables cost.
RHT’s gearing stood at 23% as at end-1QFY18. Inclusive of the capex required to complete the asset enhancements projects, gearing was still healthy at 28%. Given its optimal gearing target of 30-35%, the trust has headroom to fund any potential acquisitions, including third party assets, via debt.
“We adjust our FY18 and FY19 DPU estimates to reflect the reduced income base following the sale of the 51% stake in the Shalimar Bagh and Gurgoan CEs to Fortis Healthcare. We also introduce our FY20 DPU estimate and roll forward DDM assumptions. Hence, our TP rises to $0.92,” says CIMB.
As at 11.31am, shares in RHT Health Trust are trading at 88 cents.
