PETALING JAYA: Al-Aqar Healthcare real estate investment trust’s (Al-Aqar-REIT) combination of defensive healthcare assets, long-term leases and improving distribution yields is positioning the syariah-compliant REIT as an increasingly attractive income play, according to BIMB Securities Research.
The research house said Al-Aqar REIT’s healthcare-focused portfolio provides investors with exposure to a segment supported by favourable demographics and rising healthcare spending, while its recent share price weakness has created a more compelling entry point.
“Steady income streams from healthcare-focused assets at compelling valuations,” it said, as it initiated coverage on Al-Aqar -REIT with a “buy” recommendation and a target price of RM1.48, implying 28.7% upside from its RM1.15 share price.
The target price is based on a discounted dividend model using a 7.3% weighted average cost of capital and 2% long-term growth rate. BIMB Securities Research noted that Al-Aqar-REIT is trading at 0.92 times its financial year 2027 (FY27) forecast net asset value, below book value, after declining 11.5% from its RM1.30 peak earlier this year.
The REIT’s earnings profile is expected to strengthen further in FY26, as the newly acquired extensions at KPJ Ampang Puteri Specialist Hospital and KPJ Penang Specialist Hospital contribute a full year of rental income.
BIMB Securities Research forecasts gross revenue to rise 12.2% year-on-year to RM135mil, while net property income is expected to increase 7% to RM112.2mil.
Distribution per unit is forecast to rise from 7.06 sen in FY25 to 7.28 sen in FY26, before jumping 16.6% to 8.49 sen in FY27 and rising another 5% to 8.91 sen in FY28. Distribution yields are projected at 6.3%, 7.3% and 7.7% respectively.
The research house highlighted that the FY27 distribution yield of 7.3% offers a 360-basis-point spread over the 10-year Malaysian Government Securities yield, making the REIT relatively attractive for income-oriented investors.
The yield is also broadly comparable with selected Singapore-listed healthcare REITs, despite Al-Aqar-REIT trading at a valuation discount to its larger regional peers.
However, the research house acknowledged that gearing remains a key consideration.
Al-Aqar-REIT’s gearing rose to 48.3% from 41.3% at end-FY24 after RM250mil of additional borrowings were used to fund the hospital extension acquisitions.
BIMB Securities Research expects the planned disposal of KPJ Healthcare
College Penang and Jeta Gardens aged-care facility in Australia to provide balance-sheet relief.
