CFA Society Singapore
SINGAPORE (Dec 11): OCBC Investment Research is maintaining its “buy” call on First REIT with a fair value estimate of $1.44, on expectations of an enlarged right of first refusal (ROFR) asset pool for accretive acquisitions.
This comes after the trust saw its hospital asset, PT Siloam International Hospitals TBK, register a healthy set of 3Q results as at end Sept, which saw gross operating revenue grow 21% y-o-y to Rp1.53 trillion ($32.1 billion) with increases for both inpatient and outpatient visits over the quarter.
In a Monday report, lead analyst Joseph Ng says Siloam’s latest set of figures augurs well for First REIT’s top-line, as the rent from its Indonesian assets has a variable component pegged to two times Singapore’s consumer price index (CPI), subject to a floor of 0% and cap of 2%.
Based on the latest 0.4% y-o-y increase in inflation for Oct based on official data as well as the median Bloomberg consensus for 2017’s CPI, which currently stands at 0.6% y-o-y, the analyst continues to expect positive base rental revisions for First REIT’s Indonesian assets.
Ng also notes that the REIT currently trades at a FY17F price-to-book ratio of 1.38 times, lower than Parkway Life REIT’s 1.66 times, based on Bloomberg’s consensus.
“As mentioned in our last report, Parkway Life REIT typically trades at a premium of 14.6% over a 5-year period, and there still is a considerable gap of 20.3% at this juncture. Given the mild inflationary environment in Singapore and continued revenue growth in the underlying asset base, it would be reasonable to expect the P/B chasm to narrow,” says Ng.
“Also, having raised Rp3.1 trillion following the completion of its second rights issue, Siloam now has the dry powder necessary to develop and/or expand its hospital portfolio. This would help to enlarge First REIT’s ROFR asset pool, which it can tap on for accretive acquisitions,” he adds.
As at 10:55am, units in First REIT are trading 1 cent lower at $1.38, which translates to a FY18 distribution yield of 6.25%.