Monday, February 10, 2014

Religare Health Trust - Proposed Mohali acquisition (CIMB)

Religare Health Trust -
Current S$0.76
Target S$0.94
Proposed Mohali acquisition

Written By Stock Fanatic on Tuesday, February 4, 2014
RHT announced its proposed acquisition of The Mohali Clinical Establishment (Mohali) and interested person transaction to be entered into with Fortis Healthcare. We expect the acquisition to be yield accretive and come through in FY15. While we view the acquisition positively, we expect the higher funding cost to limit its positive impact. Our DDM-based target price increases by 1% and FY15 DPU by 1.3% as we factor in the potential acquisition.We maintain our Add rating.

What Happened
RHT announced its proposed acquisition of Mohali in Punjab, which is operated by Fortis Healthcare and owned by Radha Soami Satsang Beas, a non-profit philosophical organisation. The total costs to be incurred are estimated at S$68.8m, of which S$65m will be funded by debt and the remainder by cash. RHT proposes to enter into a Hospital and Medical Services Agreement (HMSA) with Fortis Healthcare, similar to RHT’s existing HMSAs, with base fee with 3% annual increment and variable fee at 7.5% of the operating income. There will be a non-recurring base fee of S$0.7m for the first year and S$0.5m for the second as the oncology block ramps up.

What We Think
Yield accretive. We view this deal positively as it is yield accretive and there is growth potential from the new 55-bed oncology block in Mohali, which is expected to be functional in 2HFY14. We estimate the initial net fee yield to be 7.3% and an impact on FY15 DPU of 1.3%, limited by the higher funding cost of 5.8%.

Balance sheet to remain healthy
Gearing is expected to increase to 13.3% post the acquisition. Factoring in potential capital expenditures, RHT’s FY14 and FY15 asset leverage of 11-20% remains one of the lowest among S-REITs/business trusts. There is also ample debt headroom of about S$374.7m assuming gearing limit of 40%.

What You Should Do
The yield-accretive acquisition is a positive and RHT continues to offer stability through its base fee (70% of FY14 revenue) and growth through the variable fee and hospital income. Its FY14 and FY15 dividend yield of about 10.7% on average remains one of the highest among S-REITs/business trusts. We maintain our Add rating.

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 04/02/14

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