Religare Health Trust’s Latest Earnings: What Investors Should Know

Religare Health Trust (SGX: RF1U), or RHT in short, released its fiscal third quarter earnings last Friday evening. The reporting period was for the three months ended 31 December 2014.

RHT is a business trust whose mandate is to focus on investments in medical and healthcare assets across Asia and other emerging markets.

That said, the trust’s current portfolio is made up of only healthcare assets in India. More specifically, these assets, which are collectively valued at S$857 million, comprise 12 clinical establishments, four Greenfield clinical establishments, and two operational hospitals.

With these as a backdrop, let’s dig into RHT’s latest set of financials.

The financial highlights

For the fiscal third quarter, total revenue rose 27% year-on year from S$26.86 million to S$34.09 million mainly due to an increase in service fees from the Mohai and Gurgaon clinical establishments.

Although the trust enjoyed strong revenue growth, its expenses had increased by an even larger amount – in the third quarter, total expenses ballooned by 80% from S$11.03 million a year ago to S$19.84 million. Unfavourable currency movements between the Indian rupee and Singapore dollar had resulted in RHT clocking foreign exchange losses of S$2.83 million, down from a gain of S$2 million a year ago.

The currency swings weren’t all that bad to RHT though; the trust’s financial derivatives, which are used to manage its Indian rupee denominated cash flows, actually managed to bring in some fair value gains.

All the above dynamics, coupled with an 18% decline in income tax expense, resulted in RHT’s net profit for the quarter rising 54% year-on-year to S$11.59 million.

After adjusting RHT’s net profit mainly for certain non-cash items, the trust’s distributable income for the fiscal third quarter came in at $14.4 million, up 18% compared to a year ago. On a per-unit basis, RHT’s distribution would be 1.82 cents.

Moving on to the balance sheet, the broad picture is that RHT’s finances remain strong, though they’ve weakened considerably compared to a year ago. For instance, RHT ended 2014 with a gearing ratio (total debt over total assets) of 12.5%, up from 7.5% seen at end-2013. Also the interest coverage ratio (EBITDA divided by Financial Expenses) for the nine months ended 2014 had declined to 14.5 from 27.1 seen in the same period a year ago.

In particular, the latter could be taken as a signal that RHT’s interest expenses are on the rise. With that, investors might want to keep a look out for the trust’s S$64.8 million in borrowings which are set to mature in less than a year and see if the trust has to refinance that debt at much higher interest rates.

Valuation & prospects

In its earnings release, RHT gave some comments about the tailwinds to the healthcare business in India that it could possibly enjoy. These are summarised below:

  • Huge growth potential for the Indian healthcare sector due to a growing and ageing population in India.
  • Rising affluence among various segments in the population will enhance demand for health services.
  • The current situation of under-supply in the Indian healthcare market is expected to persist for some time although more competitors are entering the fray.

Mr. Gurpeet Sing Dhillon, the Chief Executive of RHT’s Trustee-Manager, also gave some colour about RHT’s growth plans during the earnings release:

“We look to push on with organic growth within the existing portfolio through the increase of bed capacity and operational efficiencies. We also continue to evaluate quality yield enhancing assets to add to the RHT portfolio, particularly assets where we can work alongside a committed operator”.

Based on RHT’s closing price of S$1.075 last Friday, the trust’s units carry an annualized yield of 6.71%. As per the trust’s earnings release, RHT’s net asset value per unit stands at 85.9 Singapore cents, translating to a price-to-book ratio of 1.25.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.