SINGAPORE (Nov 16): DBS and CIMB are sticking to their “hold” calls on RHT Health Trust after receiving a proposed offer from Fortis Healthcare to buy out all of RHT’s assets.
See: RHT Health Trust declares 2Q DPU of 1.14 cents; gets offer from Fortis to acquire entire portfolio
The consideration for the deal is for INR46.5 billion which translates to 90 cents per share at exchange rate of INR48.11 to $1.
CIMB is leaving its FY18-20 DPU estimates unchanged and maintaining its rating target price of $0.92 pending more details on the transaction.
Analyst Lock Mun Yee says the price equates to about 1.08 times RHT’s current book value of $0.835.
DBS believes the price is fair based on the implied valuation. In addition, 1H18 distribution has not been declared.
“This is at an 11% premium to yesterday’s closing price, and implies P/NAV of 1.07x. There is a 60-day exclusivity period to negotiate,” says analyst Rachel Tan.
In 2Q18, RHT reported a 4% increase in 2Q18 revenue to $24.3 million thanks to the contractual 3% hike in base fee, higher hospital and other income.
This was partly offset by a decline in variable fee due to lower average revenue per occupied bed (ARPOB).
Distribution income was $9.7 million or 1.138 cents per unit, 23.8% of CIMB’s FY18 projections.
However, with the just-announced proposal from Fortis to acquire the entire asset portfolio of RHT Health Trust, the trustee-manager has not declared a distribution for 1HFY3/18.
In terms of operations, the trust enjoyed a higher occupancy of 77% in 2Q vs. 72% in 1Q.
However, ARPOB came in 7.8% lower q-o-q to INR14.17 million due to a decrease in the number of high-value specialty cases, accompanied by a rise in dengue and viral-related medical cases.
DBS’ Tan says RHT’s 2Q18 results came in below expectations due to higher expenses.
Following the sale of its 51% interest in Fortis Hospotel Limited (Gurgaon and Shalimar Bagh Clinical Establishments), RHT declared a special dividend of 24.8 Scts in Oct 2016.
On a comparable basis, 2Q18 DPU fell 15% y-o-y mainly due to non-recurring other trust expenses in connection with the refinancing activities and one-off consent exercise, higher finance cost and higher tax expense by an associate.
During the quarter, RHT added 24 beds to its operating portfolio, at the Shalimar Bagh, New Delhi and Kalyan, Mumbai hospitals, to reach a total 2,748. It is still on track to add a further 339 beds at BG Road, Ludhiana Noida and Mulund clinical establishments by end-FY18. This should expand its operational portfolio capacity by 12-13% y-o-y.
Fortis currently owns 29.76% of RHT and has secured an enabling solution to raise up to INR50 billion. It has been in active dialogue with financial and strategic investors, supported by Standard Chartered Bank, its financial adviser.
DBS’ Tan asks if there could be a new strategic investor, investing in Fortis Healthcare with the similar structure like Religare Enterprise?
Economic Times of India reported on Thursday that the promoters are in talks with overseas financial investors and plans to “sell” its stake via the issuance of fresh shares.
However, according to the latest Bloomberg news, a Religare spokesman said the two announcements aren’t related, while a Fortis spokesman declined to comment.
DBS has an 85 cents target price for the stock.
Units in RHT are down 3 cents at 86.5 cents or 27 times DBS’ FY18 forecast earnings.
