- We reaffirm our HOLD recommendation on Al-‘Aqar Healthcare REIT with an unchanged fair value of RM1.50/unit, based on a DCF valuation.

- Al-Aqar’s 9MFY14 realised net profit of RM44mil (+4.7% YoY) was within expectations.

- Earnings grew on the back of net property income (+0.7%), underpinned by the yearly escalation on rental income.

- Occupancy rate remained strong at 100%.

- Its total asset value as at end-9MFY14 stood at RM1.5bil, comprising a total of 25 properties.

- Gearing remained healthy at 46%.

- The acquisition of two pieces of land in Johor Bahru, located next to Puteri Specialist Hospital for the expansion of Puteri Specialist was completed on November 18.

- We make no changes to our EPS estimates and HOLD recommendation.

- Our HOLD call is premised on the lack of near-term acquisition in view that KPJ Healthcare’s new hospitals are still in infancy stage. The gestation period for new hospitals is at least three years.

- Earnings growth moving forward will be organic underpinned by the yearly rental escalation.

- The stock is currently trading at a forward distribution yield of 6.3%, at a yield spread of 237bps over the 10-year Malaysia Government Securities.

Source: AmeSecurities