KEY INVESTMENT HIGHLIGHTS

• 9MFY24 earnings within expectation
• Earnings weighed by higher expenses
• Earnings forecast maintained
• Maintain NEUTRAL with an unchanged TP of RM1.29

9MFY24 earnings within expectation. Al-'Aqar Healthcare REIT (Al- 'Aqar) 9MFY24 core net income of RM47.5m came in within our expectations, making up 73% of our full year forecast. Note that we have excluded disposal gain and unrealized forex loss in our core net income calculations. Meanwhile, Al-'Aqar announced a third interim distribution per unit (DPU) of 1.9sen, bringing total DPU to 5.7sen in 9MFY24.

Earnings weighed by higher expenses. Sequentially, 3QFY24 core net income increased marginally to RM15.7m (+2.7%qoq) despite marginally lower topline (-1.6%qoq). The slight increase in earnings were due to lower trust expenditure which led by decrease in property maintenance expenses, administrative expenses and professional fees.

On yearly basis, 3QFY24 core net income declined to RM15.7m (- 10.6%yoy), bringing 9MFY24 core net income lower at RM47.5m (- 5.3%yoy). The weaker earnings were mainly due to lower contribution from Australia segment which partly mitigated by the stable contribution from Malaysia segment. Net rental income from Malaysia segment was marginally higher (+1.4%yoy) due to annual increment on rental income.

Meanwhile, the lower earnings were also owing to higher trust expenditure which led by increase in professional fees.

Earnings forecast maintained. We make no changes to our earnings forecast for FY24F/25F/26F. Going forward, we expect earnings outlook for Al-'Aqar to be marginally better which will be sustained by lease renewal of its healthcare assets. We see that rental income from its healthcare assets should remain stable as healthcare industry in Malaysia remains resilient.

Maintain NEUTRAL with an unchanged TP of RM1.29. We maintain our TP for Al-'Aqar at RM1.29. Our TP is based on the Dividend Discount Model. Earnings outlook for Al-'Aqar is expected to remain flattish going forwards. We also see limited catalyst in the near-term. Hence, we maintain our NEUTRAL call on Al-'Aqar. Meanwhile, net distribution yield is estimated at 5.2%.

Source: MIDF Research - 29 Nov 2024