ARA Asset Management

Kim Eng on 22 Feb 2012

Results in line; catalysts in sight. ARA’s FY11 net profit was up 7% YoY to $68.2m, in line with expectations. A higher-than-expected final dividend per share (DPS) of 2.7 cents was declared, bringing full-year DPS to 5 cents. The higher minimum dividend guidance of 5 cents pa is a positive surprise, while the potential listing of a RMB-denominated REIT in 1H12 and the final closing of the Asia Dragon Fund II by 1H12 are near-term share price catalysts. Reiterate Buy with the target price raised to $1.68.

Strong net profit growth. ARA’s FY11 revenue of $122.8m (+9% YoY) was slightly ahead of market and our expectations. Excluding a mark-to-market loss of $6.1m on the Suntec REIT acquisition units received by ARA for the acquisition of the one-third stake in Marina Bay Financial Centre, net profit would have climbed 15% YoY to $73.3m. FY11 net margins remained healthy at 55.5%.

AUM growth on track. ARA’s AUM grew by about $3b during FY11 to top $20.2b by end-December. Management continues to target AUM growth of $2b pa and could achieve a $1.5b increase in AUM by 1H12 through its REITs’ acquisitions of about $540m worth of properties, and the potential listing of a new REIT (China assets) in Hong Kong or Singapore. The listing of a new REIT is critical to the unlocking of value for ADF investors, and would translate into bumper gains for ARA in FY14F.

Ample opportunities in China. ARA is expected to start deploying the committed capital in ADF II to invest in Chinese commercial assets in March 2012, implying higher fee income in 2Q12. To date, ADF II has secured US$400m in committed capital. ARA expects to raise a final US$600m from US and European investors by June 2012. Note that this figure is slightly lower than expected due to the global economic uncertainty. On a positive note, management sees ample opportunities to pick up distressed assets, especially from developers in China facing a credit crunch.

Reiterate Buy. We raise our earnings estimates for FY12F-13F by 3-10% on higher AUM assumptions. Reiterate Buy with a higher SOTP-based target price of $1.68 (previously $1.65). A key risk is a delay in the potential listing of a new REIT.