Story: ARA is an Asian real estate fund management company that focuses on
public listed REITs and private real estate funds. We believe that it is
one of the largest REIT managers in Asia (ex - Japan) in terms of real
estate assets under management. It manages REITs listed in Singapore, Hong
Kong and Malaysia, private real estate funds that invest in Singapore, Hong
Kong, Malaysia and China and a specialist equity fund that invests in REITs
and listed infrastructure and utility trusts in the Asia-Pacific region.
Point: We believe ARA can offer the following: (i) an opportunity to invest
in a stable fee-income business backed by real estate assets; (ii) this in
turn provides an alternative exposure to the asset reflation theme of the
Asian real estate market upturn; (iii) the real estate fund management
business is highly scalable and diversified. There are abundant
opportunities for the setting up of new REITs and private real estate funds
as developers pursue asset light business models and regional property
development opportunities.
Relevance: We have a target price of S$1.13 based on 14x PER (pegged to
its closest peer APN Property fund with FY09 earnings, PEG ratio of 0.40.
Following the recent price weakness, stock is currently trading at 8.0x
FY08 and 6.9x FY09 earnings. Therefore, valuation remains undemanding and
we are initiating with a Buy recommendation. We have assumed a 70% dividend
payout ratio in our forecasts.
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