(Downgrade from BUY)
Price Target: 12-Month S$0.81 (Prev S$0.94)
Weak INR to dampen FY15F DPU
• 2Q14 DPU of 2.06 Scts within expectations; 1H14 DPU of 4.05 Scts forms c.51% of forecasts
• Operations trending well with overall occupancy up
• Weak INR a key dampener to FY15F DPU; assuming INR55/SGD, c.11% lower from our previous assumption
• Downgrade to HOLD, TP revised down to S$0.81 on weaker INR
2Q14 results within expectations. DPU was 2.06 Scts for the quarter, and together with the 1.99 Scts reported for 1Q14, 1H14 DPU totalled 4.05 Scts, forming 51% of our forecasts. The stock will trade ex-dividend on 25 Nov’13, and payment will be made on 16 Dec’13.
Operations trending well… Revenue dipped by 5.2% q-o-q due to the weaker INR. However, in INR terms, revenue improved by 8% and was 3.3% above IPO projections. Distributable income ended at S$11.7m, 0.5% above IPO projections. Overall, occupancy at its Clinical Establishments improved q-o-q to 86%, from 78% in 1Q14.
…but weak INR to dampen FY15F DPU forecasts. RHT will look to enter into contracts to hedge its distribution income for 1H15F in Dec’13. However, with the recent weakness of INR, this will affect FY15F DPU; and we are now factoring in an exchange rate of SGD/INR55, compared to SGD/INR49 previously. This lowers our DPU for FY15F by c.11% to 6.7 Scts.
Downgrade to HOLD, TP cut to S$0.81. On the back of our revised SGD/INR assumption, our DDM-backed TP is lowered to S$0.81, from S$0.94 previously (WACC: 11.3%, t=3%). In view of the limited upside to our TP and volatility of the INR, we downgrade our recommendation to HOLD. While RHT offers an attractive yield of c.10% for FY14F, the projected drop in yield to 8.3% in FY15F (in SGD terms) on the back of the current INR outlook is likely to cap gains in the near term, in our view. The key upside risk to our recommendation is a significant strengthening of INR against SGD.
Publish date: 13/11/13