KEY INVESTMENT HIGHLIGHTS

• 1QFY20 earnings within expectation

• Lower sequential earnings

• Topline growth negated by higher expenses

• Earnings forecasts maintained

• Maintain BUY with unchanged TP of RM1.52

1QFY20 earnings within expectation. Al-‘Aqar Healthcare REIT (Al- ‘Aqar) 1QFY20 core net income of RM15.5m came in within our expectation, making up 23% of our full year estimate.

Lower sequential earnings. On sequential basis, Al-‘Aqar recorded marginally lower core net income of RM15.5m (-1.7%qoq) mainly due to higher administrative expenses and higher financing cost. Note that financing cost increased by 11.1%qoq due to drawdown of additional Islamic financing in December 2019.

Topline growth negated by higher expenses. On yearly basis, Al- ‘Aqar recorded higher topline of RM RM28.2m (+6.5%yoy) mainly due to income contribution from KPJ Batu Pahat Specialist Hospital which was acquired in December 2019 and annual increment on rental income. Nevertheless, net income eased by 2.9%yoy as a result of higher administrative expenses (+198%yoy) and higher financing cost (+17.1%yoy).

Maintain BUY with unchanged TP of RM1.52. We make no changes to our earnings forecasts for FY20/21F. We expect stable earnings outlook for Al-‘Aqar due to rent renewal of 6 and 14 assets in FY20 and FY21 respectively. We maintain our TP of RM1.52 for Al-‘Aqar, based on DDM valuation. Distribution yield is attractive at 5.3%.

Source: MIDF Research - 1 Jun 2020