ARA Asset Management - DBS Research 2016-05-04: Strong quality earnings

SGinvestors.io

ARA ASSET MANAGEMENT LIMITED D1R.SI 

ARA Asset Management - Strong quality earnings

• 1Q16 earnings of S$19.4m in line
• S$100m cash available to fund growth initiatives
• ADF 1 likely to see minimal promote fees

Attractive valuations, BUY! 

• The lack of news-flow and activity post the recent rights issue has resulted in a weak share price performance for ARA, which is unwarranted. 
• We see 2016 as another banner year, supported by the widely anticipated launch of Asia Dragon Fund 3 (estimated AUM of S$1.0bn and above) and a growing AUM base as positive catalysts to share price. 
• Our S$1.57 TP is based on sum-of-the parts valuation.

Positioned to capture opportunities. 

• Armed with S$100m in capital from its recent rights issue, ARA is well positioned to capture opportunities that may arise in 2016. The group is hunting for deals in key markets of China, Australia, Korea and Japan. 
• In addition, we understand that the group has invested close to S$200m as seed capital in its various funds, with an unrealised gain of US$21.7m, implying a return in the low-mid teens.

Country desk strategy in target markets of China, South Korea and Australia. 

• ARA has put in place experienced local real estate professionals as heads of its various key markets (China, Korea, Australia, Malaysia, Japan, India/GCC) that the group is keen in deepening its real estate expertise, and thus gain further assess to deal flow in these respective markets. 
• Therefore, having a combination of local real estate expertise and insights, coupled with ARA’s extensive reach to global capital partners should allow the group to remain nimble, anticipate trends and capitalise on any opportunities that may arise. 
• We understand that China, South Korea and Australia are in focus in the immediate term.

Valuation:

• We maintain our BUY call and TP at S$1.57 based on 
  1. 18x PE on its FY16F recurring fee income; and 
  2. market price of its REITs.

Key Risks to Our View:

• Execution risk. Given pre-determined timeframes for most of its private funds, a prolonged downtown could result in the group not extracting full value upon exit of its various funds.

Derek Tan DBS Vickers | Rachel Lih Rui Tan DBS Vickers | http://www.dbsvickers.com/ 2016-05-04

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.57 Same 1.57