INVESTMENT HIGHLIGHTS

• 1QFY19 earnings within expectation

• Higher sequential earnings due to lower trust expenditure

• Stable rental income growth

• Earnings forecasts maintained

• Maintain BUY with an unchanged TP of RM1.49

1QFY19 earnings within expectation. Al-‘Aqar Healthcare REIT (Al- ‘Aqar) 1QFY19 core net income of RM16m came in within our expectation, making up 26% of our full year forecast.

Higher sequential earnings due to lower trust expenditure. On sequential basis, Al-‘Aqar registered marginally higher topline of RM26.4m (+2.1%qoq) in 1QFY19 which were partly driven by full rental income received upon settlement of the KPJUC balance purchase consideration in November 2018. Meanwhile, core net income was higher at RM16m (+16.5%qoq), driven by higher rental income and lower trust expenditure (-4.5%qoq).

Stable rental income growth. On yearly basis, Al-‘Aqar recorded higher topline of RM26.4m (+3.5%yoy) in 1QFY19 due to full rental contribution from KPJUC and annual increment on rental income. Nevertheless, core net income was lower at RM16m (-4.7%yoy), owing to higher trust expenditure (+25.5%yoy) which were led by an increase in maintenance fee for properties and higher Islamic financing cost. On a separate note, gearing of Al-‘Aqar remained unchanged at 0.38x in 1QFY19.

Maintain BUY with an unchanged TP of RM1.49. We maintain our earnings forecasts for FY19/20F. We also maintain our TP for Al-‘Aqar at RM1.49. Our target price is based on DDM valuation. We like Al-`Aqar as it is a defensive healthcare REIT in Malaysia with stable earnings and low earnings downside risk. Distribution yield of Al-`Aqar is estimated at 5.0%.

Source: MIDF Research - 30 May 2019