- 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 is disposing 100% equity stake each in wholly-owned subsidiaries, Crossborder Hall (M) Sdn Bhd and Crossborder Aim (M) Sdn, to KPJ Healthcare for RM4.7mil in cash.

- Both Crossborder Hall and Crossborder Aim own 50% stake respectively in PT Permata Hijau and PT Bumi Serpong Damai in Indonesia. These assets were injected into Al-‘Aqar in 2010.

- The proposed disposal is expected to be completed by 3Q this year and would result in Al-‘Aqar making a gain of RM0.43mil.

- Al-‘Aqar is also entitled to a repayment of shareholder’ advances of RM78mil which were given to the companies.

- There will be no significant DPU enhancement as the proceeds would be used to pare down borrowings (RM80mil). Gearing is expected to reduce to 42%.

- These hospitals yield rentals of about RM7.5mil p.a. to Al-‘Aqar, which make up about 7% of revenue.

- Based on our back-of-the-envelope calculation, we expect EPU to come in at 8.8sen in FY15F and 8.0sen in FY16F post the disposal. We are maintaining our EPU estimates for now.

- The stock is currently trading at a distribution yield of 5.7%, implying a yield spread of 176bps against the 10-year Malaysia Government Securities. Maintain HOLD. 

Source: AmeSecurties