Confident in meeting 2013 targets

  1Q13 results in line high earnings quality

 

of hitting S$2bn AUM targetPrivate funds deploying capital management confident

 

uplift in earnings in the near termREITs likely to embark on acquisitions, presenting an

  HOLD maintained, TP S$1.95 (S$1.76 after 1-for-10 bonus)

Highlights

1Q13 results in line. ARA Asset Management (ARA) Limited

reported topline of S$32.2m for the quarter, a 6% drop y-o-y.

Despite this dip, which was largely due to lower acquisition fees (-

76% drop y-o-y to S$0.9m) and a decline in finance income (-36%

to S$4.5m), the group’s core recurring earnings (management fees

from its REITs and private funds) grew by 15% y-o-y to S$26.6m.

Private funds deploying capital management is confident of hitting

2013 AUM growth target of S$2bn. Management is confident of

hitting its target of growing assets under management (AUM) by

S$2bn in 2013 and initiatives are underway to meet that target. The

group should be able to meet the target through a variety of sources

and management is looking to launch 1 new REIT and 1 new Private

Equity fund over the coming quarters. On that front, we may see the

group re-launching their plans to list Dynasty REIT, with an initial

portfolio consisting of assets from its managed Asia Dragon Fund 1.

In addition, we understand that ARA has deployed 70% of the

capital in ADF2 and will be looking to launch the third fund of this

Asia Dragon series in 2014. CIP fund, anchored by Calpers, is also

expected to start investing in a number of assets in the coming

quarters.

REITs to continue acquiring and contribute to recurring earnings.

Apart from providing a steady base of recurring earnings given that

most of its REITs have seen compression in yields and are trading at

levels where they can acquire more aggressively . Management sees

Fortune REIT, Suntec REIT and Cache Logistics Trust as frontrunners

in the acquisition game in the coming quarters. When executed,

these REITs will offer near term earnings uplift (through acquisition

fees) and higher recurring income thereafter through an enlarged

AUM.

HOLD maintained, TP S$1.95 (adjusted to S$1.76 post 1-for-10

bonus). While we like ARA for its strong earnings quality and

transparent earnings stream, we note that the group currently trades

in line with global asset managers which average c17x-18x PE. Our

SOTP target price is based on (i) 18x PE on FY13/14F earnings for its

fee income business, and (ii) marked to market valuation for its

REITs. TP is adjusted slightly to S$1.95 (S$1.76 post bonus issue,

expected to go ex on 14/05/13).