Religare Health Trust
Nov 28 close: S$0.815
DBS Group Research, Nov 28
WE initiate Religare Health Trust (RHT) with "buy", TP of S$0.97.
This is an overlooked stock, which offers exposure to the fast growing Indian healthcare market, projected to be 15 per cent CAGR (10-15F) by Frost & Sullivan.
RHT, a business trust, has initial 17 assets (13 are operational), which we estimate should enable unitholders to enjoy distribution yields of about 10 per cent at the current price.
RHT derives its revenue from service fees payable by Fortis Healthcare, a leading integrated healthcare services provider in India, through base and variable fees.
Variable fees are calculated at 7.5 per cent of operating revenue, rather than profits.
This provides upside potential as Fortis continues its growth trajectory on the back of increasing average revenue per bed, occupancy and bed capacities.
Over the medium term, we believe DPU could be further enhanced as its greenfield clinical establishments come onstream, coupled with inorganic growth through acquisitions to leverage on its current low gearing (at c.7%).
Distribution discount model-backed TP is S$0.97.
The c.10% yield looks very attractive compared with peers trading at yields of 6.8-8.4 per cent.
Currently, 96 per cent of its assets are operational and its distribution income hedged in Singapore dollars till end-FY14F. This gives greater assurance in meeting our DPU forecasts.
We see confidence rising as management delivers, with the first distribution (FY2013 ending March 31) as a key catalyst.
We call a "buy" for over 30 per cent total return upside. A key risk is the weakening of the Indian rupee against the Singapore dollar. We estimate a one per cent depreciation will impact distribution per unit by about one per cent, all else constant.