UOBKayhian on 5 Nov 2013
(ART SP/HOLD/S$1.29/Target: S$1.31)
FY13F PE (x): 19.5
FY14F PE (x): 20.9
Rights issue is not a surprise but the 23% discount is. While we had expected ART to raise funds via a placement or a rights issue due to its relatively high gearing of 41%, the steep 23% discount to closing price
comes in as a surprise. During the previous two rounds of fund raising, the new shares were placed out at relatively low 5-10% discounts. Management mentioned that the units were priced attractively to benefit unit holders.
Acquisition on the cards. ART did not announce any concrete acquisition along with the rights but stressed that it is in advanced stages (expected timeline: three months) to acquire assets in China, Japan, Malaysia and Australia. The potential acquired assets are likely to be from the sponsor as well as third parties, with the former accounting for the bulk of it. Management stressed that new acquisitions will be yield-accretive to unit holders, citing recent acquisitions in China and Japan being done at an NPI yield of 5.5-6%.
Maintain HOLD with a lower ex-rights target price S$1.31 (previously S$1.48) as we factor in the DPU dilution. Key re-rating catalyst would be any yield-enhancing acquisitions in the near term. Our target price is based on a two-stage dividend discount model (required rate of return: 8.2% and terminal growth: 2.0%). Suggested entry price is S$1.15.
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