INVESTMENT HIGHLIGHTS

• 1HFY19 earnings within expectation

• 1HFY19 CNI dipped by 3.1% to RM31.2m

• 2Q1FY19 CNI eased by 1.4%yoy to RM15.2m

• Maintain NEUTRAL with an unchanged TP of RM1.49

1HFY19 earnings within expectation. Al-‘Aqar Healthcare REIT (Al- ‘Aqar) 1QFY19 core net income (CNI) of RM31.2m came in within ours and consensus’ expectation at 51% of full year estimates respectively. An interim DPU of 1.91sen was announced, bringing ytd DPU to 4.9sen.

1HFY19 CNI dipped by 3.1% to RM31.2m even though revenue increased by 3.1%yoy to RM52.7m. The higher revenue to-date can be attributed to income from KPJ Healthcare University College, Nilai (KPJUC). However, CNI declined due to property expenses that increased due to maintenance of properties amounting to RM1.4m as well as higher Islamic finance costs that increased by RM1.3m due to drawdown of additional loans to part finance the outstanding balance from asset acquisition previously.

2Q1FY19 CNI eased by 1.4%yoy to RM15.2m although revenue advanced by 2.7%yoy to RM26.3m mainly due to maintenance of properties, lower investment income, higher annual financing fees and higher profit sharing expenses on financing. Maintenance of properties amounted to RM0.65m during the quarter. Compared to 1QFY19, CNI fell by 4.6%qoq as gross rental income slid 0.7%qoq. Gearing of Al- ‘Aqar remained largely unchanged at 0.38x in 2QFY19 compared to the quarter before.

Maintain NEUTRAL with an unchanged TP of RM1.49. We maintain our earnings forecast for FY19F/20F as earnings are in-line. Hence, we make no changes to our TP for Al-‘Aqar at RM1.49 and our

NEUTRAL recommendation. Our target price is based on DDM valuation. While we like Al-`Aqar as a defensive healthcare REIT in Malaysia with stable earnings and low earnings downside risk, unit price upside is limited at the moment. Distribution yield of Al-`Aqar is estimated at 5.0%.

Source: MIDF Research - 3 Sept 2019