KEY INVESTMENT HIGHLIGHTS

• 9MFY19 earnings within expectation

• Higher sequential earnings in 3QFY19

• Flattish earnings in 9MFY19

• Maintain NEUTRAL with an unchanged TP of RM1.49

9MFY19 earnings within expectation. Al-‘Aqar Healthcare REIT (Al- ‘Aqar) 9MFY19 core net income (CNI) of RM47.3m came in within our expectation, meeting 77% of our full year estimate.

Higher sequential earnings in 3QFY19. 3QFY19 core net income was higher at RM16.1m (+6%qoq), in line with higher gross rental income of RM26.7m (+1.7%qoq). The higher sequential core net income in 3QFY19 was partly attributed to lower trust expenditure (-4.7%qoq). The decline in trust expenditure was mainly led by lower property maintenance fee. Financing cost was also lower due to overnight policy rate cut. Gearing of Al-‘Aqar remained largely unchanged at 0.38x in 3QFY19 compared to the quarter before.

Flattish earnings in 9MFY19. 3QFY19 core net income grew 6.5%yoy to RM16.1m, bringing cumulative core net income to RM47.3m in 9MFY19. Gross rental income was higher in 9MFY19 by 3.5%yoy due to contribution from KPJ Healthcare University College, Nilai (KPJUC). Nevertheless, core net income was flattish in 9MFY19 due to higher trust expenditure as a result of higher financing cost, higher property maintenance fee, and higher administrative expenses.

Maintain NEUTRAL with an unchanged TP of RM1.49. We maintain our earnings forecasts for FY19F/20F We also maintain our TP for Al-‘Aqar at RM1.49 and our NEUTRAL recommendation. Our target price is based on DDM valuation. We are keeping our Neutral recommendation on Al-`Aqar due to limited upside. Distribution yield of Al-`Aqar is estimated at 4.8%.

Source: MIDF Research - 22 Nov 2019