KEY INVESTMENT HIGHLIGHTS

• FY19 earnings within expectation

• Marginally lower sequential earnings

• Higher earnings in FY19

• Earnings forecast maintained

• Upgrade Buy from Neutral with a higher TP of RM1.52

FY19 earnings within expectation. Al-‘Aqar Healthcare REIT (Al- ‘Aqar) FY19 core net income of RM63.1m came in within our expectation, meeting 103% of our full year estimate. Note that we have excluded fair value adjustment on properties of RM13m in our core net income calculation. Al-‘Aqar announced final DPU of 2.02sen per unit, bringing total DPU to 7.75 sen.

Marginally lower sequential earnings. 4QFY19 core net income came in higher at RM15.8m (-2.2%qoq) on sequential basis. The marginally lower earnings were due to higher maintenance cost of properties (+198%qoq). Meanwhile, gearing of Al-‘Aqar increased marginally to 0.39x in 4QFY19 from 0.38x in 3QFY19.

Higher earnings in FY19. 4QFY19 core net income inched up 15.1%yoy to RM15.8m, bringing full year core net income to RM63.1m (+3.37%yoy) in FY19. Gross rental income was higher at RM106.1m (+3.4%yoy) in FY19, thanks to contribution from KPJ Healthcare University College, Nilai (KPJUC).

Earnings forecast maintained. We make no changes to our earnings forecast for FY20F. We also introduce our earnings forecast for FY21F. We expect earnings outlook for FY20 and FY21 to be positive, underpinning by rent renewal of 6 and 14 assets respectively.

Upgrade Buy from Neutral with a higher TP of RM1.52. We revise our TP for Al-‘Aqar to RM1.52 from RM1.49 as we rollover our base year to FY20. Our target price is based on DDM valuation. We upgrade Al- ‘Aqar to Buy from Neutral as we see attractive upside from the current share price. Earnings outlook for Al-‘Aqar remains positive while distribution yield is attractive at 5.2%.

Source: MIDF Research - 26 Feb 2020