-  We reaffirm our HOLD recommendation on Al-`Aqar Healthcare REIT, with an unchanged fair value of RM1.45/unit, based on our DCF-derived valuation.

-  Al-`Aqar’s 1HFY13 results are largely in line with expectations, accounting for 49% of our full year realised net profit.

-  Revenue and realised net profit were up by 8% and 7% respectively on a YoY basis. This is mainly due to contributions from Bandar Baru Klang Specialist Hospital (acquired in June 2012) which accounted for 7% of rental income in 1HFY13.

-  Total asset value currently stands at RM1.46bil with 25 properties under the REIT. Portfolio occupancy remains strong at 100%, thanks to KPJ Healthcare (BUY, FV: RM8.00/share) as its tenant.

-  Al-`Aqar is expected to continue charting decent growth, accentuated by rental renewals and annual rental escalation.

-  We do not foresee any asset injection this year and any accretive asset acquisition should only kick in next year, as KPJ and Al’-Aqar are still currently in discussion.

-  Note that there are a few KPJ hospitals that are yet to be injected into Al-`Aqar. These include the Sabah Medical Centre; nursing colleges in Nilai; specialist hospitals in Pasir Gudang, Sibu, and Maharani.

-  On the flipside, KPJ is on an aggressive expansion to add 9 hospitals within the next 3 years.

-  The REIT is also looking for third-party acquisitions to reduce its reliance on KPJ. Following the success of Jeta Gardens, we will not be surprise if the group intends to acquire similar properties.

-  We continue to like Al-`Aqar for its positive prospects backed by KPJ Healthcare as its single and reputable tenant. At the current level, the stock is trading at forward yields of ~6%.

-  We maintain our HOLD call on Al-`Aqar until further visibility of an asset injection.

-  Capitamalls Malaysia Trust (FV: RM2.15/share) remains our TOP BUY within the REITs space due to its first mover acquisition advantage.

Source: AmeSecurities