The Positives
+ Inorganic growth from recent acquisitions and future organic growth visibility from uptick in CPI. YoY revenue growth from full quarter contribution from Siloam Hospitals Buton & Lippo Plaza Buton and Siloam Hospitals Yogyakarta acquired on 10 Oct 2017 and 22 Dec 2017, respectively. Locked-in future organic growth for FY19, owing to increase in Singapore CPI (figure 3) – to which FIRT’s Indonesia properties’ rentals are pegged.
+ Secured financing facilities to refinance 1Q18 current debt. FIRT had secured S$400mn in syndicated secured financing facilities on 16 Jan 2018, which will be used to partially refinance outstanding bank loans as well as for investment and working capital purposes.
The Negatives
– Receivables creeping up and potential further aging. Total receivables grew 10% QoQ to S$58.4mn in 1Q18, equivalent to 53% of FY17 revenue. Lippo Karawaci (LPKR), FIRT’s Sponsor and the master lessee of FIRT’s Indonesia properties, had been issued a credit downgrade by Fitch in Feb 2018 on the back of a significantly reduced cash flow access.
Outlook
FIRT’s organic rental growth formula is structured to either be flat or positive. Hence the uptick in Singapore CPI for 2017 automatically locks in higher recurring revenue for FY19. Current gearing of 33.5% affords a debt headroom of c.S$101m (assuming 40% comfort threshold) to pursue inorganic growth via LPKR’s pipeline of 40 hospitals – two of which are ripe for injection this year. The Manager clarified that the new tax regulations in Indonesia relating to income received from building leases, are not expected to have any material impact as FIRT’s Indonesian properties are on master leases.
Maintain NEUTRAL with adjusted TP of S$1.31 (prev S$1.32)
FIRT currently trades at the upper range of its post-GFC average valuation boundaries (figures 1 and 2). We maintain our NEUTRAL rating with a slightly lower target price of S$1.31, mainly adjusting for a different set of assumptions – primarily on acquisitions funding and finance costs – following a change of analyst. Potential catalysts include an improvement of the Sponsor’s creditworthiness while downside risks include a similar tax regulation change that would affect FIRT. Our target price translates to a FY18e yield of 6.8% and a P/NAV of 1.19x.
Figures 1 and 2: FIRT valuations vs historical
Figure 3: Singapore’s CPI recovered to 1% in 2017 following negative CPI the preceding year
