INVESTMENT HIGHLIGHTS

• 9MFY18 earnings within expectation

• Flattish earnings on sequential basis

• Stable earnings on yearly basis

• Maintain BUY with unchanged TP of RM1.45

9MFY18 earnings within expectation. Al-‘Aqar Healthcare REIT (Al- ‘Aqar) 9MFY18 core net income of RM47.3m came in within our expectation, making up 78% of our full year forecast. Al-‘Aqar announced third interim income distribution of 1.93 sen per unit.

Flattish earnings on sequential basis. Al-‘Aqar recorded flattish topline of RM25.6m, largely unchanged from the previous quarter. Meanwhile, core net income was marginally lower at RM15.1m (- 2%qoq). The marginally lower earnings on sequential basis were mainly due to higher trust expenditure (+8%qoq). Note that the increase in trust expenditure was mainly led by higher expenses for maintenance of properties. Meanwhile, gearing of Al-‘Aqar remains unchanged at 0.37x in 3QFY18.

Stable earnings on yearly basis. Al-‘Aqar recorded core net income of RM25.6m in 3QFY18, bringing cumulative earnings in 9MFY18 to RM47.3m (+2.0%yoy). The year-on-year positive earnings growth in 9MFY18 was in line with topline growth of +2.5%yoy. Topline was supported by renewal of leases and rental contribution from car park block at KPJ Selangor Specialist Hospital (acquired in December 2017). Meanwhile, lower sukuk financing cost (-9.4%yoy) has also helped in earnings growth. Recall that Al-‘Aqar redeemed sukuk amounting RM80m on 20 July 2017.

Maintain BUY with unchanged TP of RM1.45. We make no changes to our earnings forecasts for FY18/19. We also maintain our target price of RM1.45, based on DDM valuation. Moreover, we maintain our BUY recommendation on Al-`Aqar as we like Al-`Aqar for: i) its unique positioning as a defensive healthcare REIT in Malaysia, and ii) stable earnings growth and low earnings downside risk.

Source: MIDF Research - 3 Dec 2018