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3 Aug 2016
BUY
Delivering as promised
Positioned to grow, BUY. Flushed with proceeds from the
recent rights issue, ARA Asset Management (ARA) is well
positioned to capture AUM through the launch of new fund
products with capital partners. We expect ARA to grow AUM
by S$2bn per annum. In addition, its staple of REITs under
management has more than S$5bn in acquisition capacity
which can be utilised to acquire and grow its AUM. We
maintain our BUY call and TP of S$1.76. It currently trades at
15x FY17E PE, at the lower end of historical range, and implied
EV/AUM multiple of 4.2%, below -1SD of its historical range.
Whats New
Price Relative
S$
Relative Index
2.1
207
1.9
187
1.7
167
1.5
147
1.3
127
1.1
0.9
Aug-12
107
Aug-13
Aug-14
Aug-15
87
Aug-16
2015A
156
102
95.5
78.1
78.1
(10.8)
8.96
8.96
(11)
8.96
5.00
59.8
14.7
14.7
50.0
10.4
3.8
2.2
CASH
18.1
2016F
165
102
101
82.6
82.6
5.8
8.28
8.28
(8)
8.28
5.00
55.5
15.9
15.9
16.8
12.2
3.8
2.4
CASH
15.4
2017F
174
106
105
86.2
86.2
4.4
8.65
8.65
4
8.65
5.00
59.1
15.3
15.3
16.2
11.9
3.8
2.2
CASH
15.1
2018F
192
115
115
94.1
94.1
9.1
9.44
9.44
9
9.44
5.00
63.5
14.0
14.0
15.1
11.0
3.8
2.1
CASH
15.4
8.30
B: 2
8.60
S: 0
8.80
H: 0
ASIAN INSIGHTS
ed: TH / sa:YM
997
1,316 / 981
20.1
18.9
11.0
32.6
0.47
VICKERS SECURITIES
Company Guide
ARA Asset Management
WHATS NEW
Delivering as promised
1H16 NP recorded strong growth from higher
management fees and distribution income. ARA reported
a 9% y-o-y increase in net profit to S$39m in 1H16, in line at
47% of our FY16E estimates. Adjusted net profit (ex-one off
gains) grew 7% to S$37m. The strong growth was led by a
10% increase in revenue mainly led by higher management
fees (+10%) and distribution income (+67%), offset by higher
operating expenses (+7%) and lower share of profits of
associates and JV (-59%) as there were acquisition fees from
Hui Xian REIT and higher income contribution from Cache
Property management were recorded in 1H15.
Strong management fee growth (+10%) was contributed
from all three areas: i) 4% y-o-y increase in REIT base
management fees following Suntec REITs acquisition of three
floors of strata office space at Suntec Tower Two and Caches
acquisition of three properties in Australia in 4Q15, ii) 38% yo-y increase in Portfolio management fees from CIP
(acquisition of two commercial properties in 4Q15), launch of
ARA Harmony Fund III and V and contribution from PIP, and
iii) 11% increase in real estate management fees mainly led
by AEI at Suntec City and CIP (two additional commercial
properties).
Operating margins improved y-o-y by 1.8ppt to 59%.
2Q2015
1Q2016
2Q2016
% chg yoy
% chg qoq
36.8
41.4
40.3
9.4
(2.8)
(16.2)
(16.9)
(16.4)
1.1
(3.0)
20.6
24.5
23.9
16.0
(2.6)
0.0
0.0
0.0
nm
nm
2.35
1.26
1.05
(55.5)
(17.1)
(2.8)
(2.0)
(0.8)
70.7
58.3
0.0
0.0
0.0
nm
nm
Pre-tax Profit
20.2
23.8
24.1
19.6
1.2
Tax
(3.3)
(3.8)
(3.9)
18.2
2.0
Exceptional Gain/(Loss)
Minority Interest
(0.5)
(0.7)
(0.9)
106.9
36.1
Net Profit
16.4
19.4
19.3
17.5
(0.2)
16.4
19.4
19.3
17.5
(0.2)
EBITDA
23.0
25.8
24.9
8.6
(3.3)
55.9
59.2
59.3
44.7
46.7
48.0
Margins (%)
ASIAN INSIGHTS
Page 2
VICKERS SECURITIES
Company Guide
ARA Asset Management
AUM
32
30
Earnings Drivers:
Steady income stream from REITs/private funds. ARA is
estimated to derive c.55% of its revenues from management
fees (base fees, performance fees and acquisition fees) from its
REITs. Fees from its Private Funds and other property
management arm contribute the remaining 45%. Fee revenues
from its REITs, private funds are mainly recurring in nature and
offer strong income visibility to investors.
29.4
2017F
2018F
26.4
19.6
14.7
9.8
4.9
0.0
2014A
2015A
2016F
Operating Margins
0.6
0.61
0.61
0.61
0.6
2014A
2015A
2016F
2017F
2018F
0.62
0.50
0.37
0.25
0.12
0.00
S$'m
Others
Private Funds
REITs
200.0
150.0
100.0
50.0
0.0
FY13
34
24.5
34
FY14
FY15
FY16F
FY17F
FY18F
17F
18F
S$ 'm
90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
13
14
15
16F
S$'m
176.8
284.6
1,324.3
1,785.8
62.6
(96.3)
1,752.1
997.3
1.76
ASIAN INSIGHTS
VICKERS SECURITIES
Page 3
Company Guide
ARA Asset Management
Balance Sheet:
Conservative gearing. The group is expected to maintain a
leverage ratio of less than 10% over FY16-17. These loans are
largely taken to finance strategic stakes in the various private
equity funds and strategic units of the REITs that are held by the
group.
0.12
0.10
0.4
0.08
0.4
0.06
0.3
0.04
0.3
0.02
0.00
0.2
2014A
2015A
2016F
2017F
2018F
ROE (%)
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
2014A
2015A
2016F
2017F
2018F
(x)
20.9
+2sd:20.7x
18.9
+1sd:18.9x
16.9
Avg:17.1x
14.9
1sd:15.3x
2sd:13.5x
12.9
10.9
Aug-12
Aug-13
Aug-14
Aug-15
Aug-16
PB Band (x)
(x)
Key Risks:
Reliance on key personnel. John Lim, founder of the group, is
instrumental in the running and management and has over
time built up a strong rapport with key global-based capital
partners in ARA private funds. He is also one of the largest
shareholders of the company. To minimise the perception of
key man risk for the group, ARA has over time built up and
empowered a credible management team to make key
strategic directions for the group.
7.3
+2sd:6.83x
6.3
+1sd:5.51x
5.3
4.3
Avg:4.18x
3.3
1sd:2.85x
2.3
1.3
Aug-12
2sd:1.53x
Aug-13
Aug-14
Aug-15
Aug-16
Company Background
ARA Asset Management Limited (ARA) is a real estate fund
management company that focuses on the management of
public-listed real estate investment trusts. The group generates
income by earning a percentage of the value of the assets it
manages. ARA had S$29.8bn of assets under its management
as of 31 December 2015.
ASIAN INSIGHTS
Page 4
VICKERS SECURITIES
Company Guide
ARA Asset Management
Key Assumptions
FY Dec
AUM
Operating Margins
Segmental Breakdown
FY Dec
Revenues (S$m)
REIT
Private real estate Funds
Others
Total
Income Statement (S$m)
FY Dec
Revenue
Other Opng (Exp)/Inc
Operating Profit
Other Non Opg (Exp)/Inc
Associates & JV Inc
Net Interest (Exp)/Inc
Exceptional Gain/(Loss)
Pre-tax Profit
Tax
Minority Interest
Preference Dividend
Net Profit
Net Profit before Except.
EBITDA
Growth
Revenue Gth (%)
EBITDA Gth (%)
Opg Profit Gth (%)
Net Profit Gth (Pre-ex) (%)
Margins & Ratio
Opg Profit Margin (%)
Net Profit Margin (%)
ROAE (%)
ROA (%)
ROCE (%)
Div Payout Ratio (%)
Net Interest Cover (x)
2014A
2015A
2016F
2017F
2018F
26.4
0.60
30.0
0.61
32.0
0.61
34.0
0.61
34.0
0.60
2014A
2015A
2016F
2017F
2018F
100
48.4
24.6
173
98.2
42.8
15.0
156
98.5
53.8
12.7
165
99.7
61.2
12.7
174
103
76.2
12.7
192
2014A
2015A
2016F
2017F
2018F
173
(70.7)
102
0.0
4.31
(3.1)
0.0
104
(12.9)
(3.2)
0.0
87.5
87.5
107
156
(61.5)
94.5
0.0
7.47
(6.6)
0.0
95.5
(14.1)
(3.3)
0.0
78.1
78.1
102
165
(70.1)
95.0
0.0
6.73
(0.6)
0.0
101
(15.2)
(3.4)
0.0
82.6
82.6
102
174
(74.4)
99.3
0.0
6.74
(0.6)
0.0
105
(15.8)
(3.4)
0.0
86.2
86.2
106
192
(83.5)
109
0.0
6.74
(0.6)
0.0
115
(17.2)
(3.5)
0.0
94.1
94.1
115
23.3
15.0
15.2
17.9
(9.8)
(4.4)
(7.7)
(10.8)
5.8
(0.3)
0.5
5.8
5.2
4.3
4.6
4.4
10.6
8.8
9.4
9.1
59.2
50.6
28.3
22.6
25.8
49.7
33.1
60.6
50.0
18.1
15.5
17.4
55.8
14.4
57.5
50.1
15.4
13.9
14.4
60.4
167.6
57.2
49.7
15.1
13.7
14.1
57.8
175.3
56.6
49.0
15.4
13.9
14.3
53.0
191.7
ASIAN INSIGHTS
VICKERS SECURITIES
Page 5
Company Guide
ARA Asset Management
4Q2015
1Q2016
2Q2016
36.8
(16.2)
20.6
0.0
2.35
(2.8)
0.0
20.2
(3.3)
(0.5)
16.4
16.4
23.0
38.2
(14.5)
23.8
0.0
0.70
(3.3)
0.0
21.2
(3.5)
(0.5)
17.1
17.1
24.5
46.2
(15.3)
30.9
0.0
1.16
(1.2)
0.0
30.8
(3.8)
(1.4)
25.6
25.6
32.0
41.4
(16.9)
24.5
0.0
1.26
(2.0)
0.0
23.8
(3.8)
(0.7)
19.4
19.4
25.8
40.3
(16.4)
23.9
0.0
1.05
(0.8)
0.0
24.1
(3.9)
(0.9)
19.3
19.3
24.9
(2.3)
(9.6)
(7.0)
(13.3)
3.9
6.6
15.4
3.9
20.7
30.8
29.8
49.6
(10.2)
(19.4)
(20.5)
(24.3)
(2.8)
(3.3)
(2.6)
(0.2)
100.0
55.9
44.7
100.0
62.1
44.7
100.0
66.8
55.4
100.0
59.2
46.7
100.0
59.3
48.0
2014A
2015A
2016F
2017F
2018F
1.77
6.01
274
108
0.0
38.5
0.0
428
2.11
16.2
405
110
0.0
47.8
0.0
581
2.11
16.2
455
95.5
0.0
43.0
0.0
611
2.11
16.2
505
83.7
0.0
45.2
0.0
652
2.11
16.2
555
78.0
0.0
50.0
0.0
701
ST Debt
Creditor
Other Current Liab
LT Debt
Other LT Liabilities
Shareholders Equity
Minority Interests
Total Cap. & Liab.
34.2
32.7
11.1
0.16
1.32
341
6.99
428
0.05
25.0
12.4
14.1
1.95
520
7.30
581
0.05
16.4
15.2
14.1
1.95
553
10.6
611
0.05
16.4
15.8
14.1
1.95
589
14.1
652
0.05
16.4
17.2
14.1
1.95
634
17.5
701
(5.4)
73.5
76.0
N/A
N/A
0.4
1.9
1.9
CASH
CASH
0.0
11.0
10.5
96.1
100.9
N/A
N/A
0.3
4.2
4.2
CASH
CASH
0.0
14.8
11.3
81.3
100.4
N/A
N/A
0.3
4.4
4.4
CASH
CASH
0.0
18.5
12.9
69.5
92.6
N/A
N/A
0.3
4.0
4.0
CASH
CASH
0.0
18.3
16.3
63.8
90.4
N/A
N/A
0.3
3.8
3.8
CASH
CASH
0.0
17.9
Growth
Revenue Gth (%)
EBITDA Gth (%)
Opg Profit Gth (%)
Net Profit Gth (Pre-ex) (%)
Margins
Gross Margins (%)
Opg Profit Margins (%)
Net Profit Margins (%)
ASIAN INSIGHTS
Page 6
VICKERS SECURITIES
Company Guide
ARA Asset Management
2014A
2015A
2016F
2017F
2018F
104
0.0
(10.1)
(4.3)
1.52
11.4
102
0.0
(37.9)
0.0
2.22
0.0
(35.7)
(43.8)
3.12
0.0
(0.8)
(41.4)
0.33
25.4
11.6
11.7
95.5
0.0
(11.1)
(7.5)
(17.1)
(36.8)
23.0
0.0
(88.5)
0.0
(5.3)
0.0
(93.8)
(45.2)
(20.2)
151
(2.6)
82.7
0.49
12.3
4.60
2.64
101
0.0
(12.4)
(6.7)
(3.7)
0.0
78.4
0.0
(50.0)
0.0
6.73
0.0
(43.3)
(49.9)
0.0
0.0
0.0
(49.9)
0.0
(14.8)
8.23
7.86
105
0.0
(15.2)
(6.7)
(2.2)
0.0
81.3
0.0
(50.0)
0.0
6.74
0.0
(43.3)
(49.9)
0.0
0.0
0.0
(49.9)
0.0
(11.8)
8.38
8.15
115
0.0
(15.8)
(6.7)
(4.8)
0.0
87.5
0.0
(50.0)
0.0
6.74
0.0
(43.3)
(49.9)
0.0
0.0
0.0
(49.9)
0.0
(5.7)
9.25
8.77
S$
1.66
1.56
1.46
6
2
1.36
1.26
Closing Price
12-mth
Target
Price
S.No.
Date
Rating
1:
11 Aug 15
1.60
1.78
BUY
2:
15 Sep 15
1.35
1.79
BUY
3:
05 Feb 16
1.08
1.57
BUY
4:
04 May 16
1.19
1.57
BUY
5:
31 May 16
1.40
1.57
BUY
6:
13 Jun 16
1.40
1.76
BUY
1.16
1.06
3
0.96
Aug-15
Dec-15
Apr-16
Aug-16
Note : Share price and Target price are adjusted for corporate actions.
ASIAN INSIGHTS
VICKERS SECURITIES
Page 7
Company Guide
ARA Asset Management
DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the
commodity referred to in this report.
DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research
department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction
in the past twelve months and does not engage in market-making.
ASIAN INSIGHTS
Page 8
VICKERS SECURITIES
Company Guide
ARA Asset Management
ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in the report. The DBS Group has
procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of
research reports. As of 3 Aug 2016, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold
interests in the securities recommended in this report (interest includes direct or indirect ownership of securities). The research analyst(s)
responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and
procedures are in place to ensure that confidential information held by either the research or investment banking function is handled
appropriately.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1.
DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates do not have a proprietary
position in the securities recommended in this report as of 30 Jun 2016.
2.
DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.
DBS Bank Ltd, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for
investment banking services from ARA Asset Management as of 30 Jun 2016.
4.
DBS Bank Ltd, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for
ARA Asset Management in the past 12 months, as of 30 Jun 2016.
DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a
manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further
information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document
should contact DBSVUSA exclusively.
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ASIAN INSIGHTS
VICKERS SECURITIES
Page 9
Company Guide
ARA Asset Management
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ASIAN INSIGHTS
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VICKERS SECURITIES