Al-Aqar Healtchare - 1QFY12 largely in line; backed by recent acquisitions Hold

- We are downgrading our recommendation to a HOLD with an unchanged fair value at RM1.39/unit, given that the share price of RM1.36/unit has almost hit our fair value.

- Nonetheless, KPJ is opening seven hospitals over the next three years. These hospitals will potentially be injected into Al-‘Aqar. Additionally, management is actively looking at potential third party acquisitions.

- Al-‘Aqar’s 1QFY12 reported net income stands at RM13mil (+12% YoY; -4% QoQ), bringing it to 23% of our and consensus estimate, in line with expectations.  

- 1QFY12 gross rental income totalled RM25mil (+24% YoY; +8%  QoQ), underpinned by its recent acquisitions – Rumah Sakit Medika Permata Hijau, Rumah Sakit Bumi Serpong Damai, Jeta Gardens Age Care Facility and Retirement Village and Kluang Utama Specialist Hospital – which contributed RM4.8mil (+21%).

- On a sequential basis, the decline in net income before tax by 75% was due to recognition of gains on fair value of properties aggregating to RM39mil in December last  year. Nevertheless, the impact on bottom line (-4% QoQ) was also affected by marginally higher non-property operating and financing costs.   

- During the quarter, Al-‘Aqar had declared 2.52 sen/unit, totalling to RM16mil as final distribution for the year ended FY11.  Distribution had been paid to unit holders in April.

- To-date, Al-‘Aqar has a total of 24 properties amounting to RM1.36bil in value. KPJ Healthcare has commenced operations at the Bandar Baru Klang Specialist Hospital. The injection into Al-‘Aqar is expected to be completed by 2HFY12. 

- Al’Aqar will be undergoing a refinancing exercise for its borrowings by February next year. 

- Moving forward, we believe Al-‘Aqar would inject more aged care and retirement villages via third-party acquisitions; and continue to look for opportunities in Australia, given the success of Jeta Gardens and demand for such properties is gaining momentum. 

- Our earnings forecasts remain unchanged. Given that share price has climbed to RM1.36/unit from RM1.21/unit, projected dividend yields are at 5.7% and 5.8% (vs. CMMT: 5.6% and 5.9%; PavREIT: 5.4% and 6.4%) translating into DPS of 7.8 sen and 7.9 sen, for FY12F and FY13F, respectively. Hence, our HOLD rating.

Source: AmeSecuritie