ARA-DBS

With earnings steady like a rock, we see little downside
earnings risk for ARA Asset Management (ARA) due to its
highly scalable fee-income based model. Our target price is
adjusted slightly downwards to 60cts, based on 10x P/E
FY10 trough earnings. Opportunistic new funds and M&A
activities could provide earnings surprise in the near term.
Maintain BUY.
Delivering with prudence. FY08 was largely uneventful
as the group consolidate its position and did not raise new
funds which on hindsight could have diluted performance.
Gross revenues were 13% higher at S$70m, mainly on the
back of full year contribution of its fee income from ARA
Asia Dragon fund. Net profit margins remained relatively
stable at c. 52%, resulting in a NOPAT of S$36.5m (+8% yo-
y). The group also proposed a final dividend of 2.24 Scts
per share, bringing total dividend per share to 3.8 Scts,
translating to a yield of c. 10%.
Adjust fund raisings assumptions, mark-to-market
Reits. We mark to market the various reits AUM valuations
as at 31 Dec’08 and moderate fund raisings assumptions
due to increasingly tight capital markets. Our forward
estimates assumes: (i) further 10% decline in asset values in
its listed reits as at Dec’09, (ii) adjust new funds raised over
FY09 to US$350m (previously US$500m), contributing only
in FY10. Our forward FY09-10 EPS forecasts are thus
reduced by c. 12% respectively to 6.1 cts and 6.7 cts.
China Fund- the next catalyst? Declining real estate
prices in China & Japan, could present buying windows of
opportunities for ARA in the near term. In this aspect, we
believe that ARA could launch a new China fund given (i)
relative attractive value proposition compared to Japan, (ii)
group has begun expanding its networks and presence
there. The launch of a new fund, we view, is likely to serve
as the re-rating catalyst for the stock in the near term.

ARA-CS

● Due to the deteriorating operating environment for its REITs as
well as growing new funds, we make some adjustments to our key
assumptions and consequently cut our FY08-10E forecasts by 5-
25% and target price by 30% to S$0.69 (from S$0.98) for ARA.
● While its business model is highly scaleable, asset devaluation at
its REITs will affect its fee income, which is based on AUM and
rental incomes, and growth momentum from raising new funds
(Islamic fund II, Japan fund) clearly slows with global investor risk
aversion and tight capital flows.
● We have assumed more conservative growth in terms of its AUM
as well as a 20% devaluation at its REITs by end-2009. We have
also adjusted for marked-to-market losses for its REIT
investments.
● Despite the slower growth momentum, we maintain
OUTPERFORM on its attractive valuation of 6x FY08 earnings
(5.2x ex-cash), a 12% dividend yield and strong balance sheet.
Risks include worse-than-expected asset devaluation and its small float/market cap.

HPL-DBS

HPL’s FY08 profit of S$33m was in line with our
expectations, once its revaluation loss of S$38m was
excluded. We remain concerned about its relatively high
gearing ratio and its exposure to high-end hospitality
and high-end property development. Maintain Fully
Valued, TP S$0.68.
FY08 Profit Down 78%. HPL registered a 78% yoy
drop in earnings to S$33m against revenue growth of
34% to S$612m. The divergence in performance was
due to a revaluation loss of S$38m in FY08, against a
gain of S$104m in FY07. Excluding the exceptional loss,
its FY08 net profit was in line with our expectations. The
Group declared a dividend of 1 ct/shr (FY07: special
dividend of 22 cts/shr).
Still Relatively Highly Geared. Though its hotel
business is cash flow generative, its current cash in hand
remains low at S$41m, against a net debt position of
nearly S$1.3bn. Its gearing ratio of 1.1x remains one of
the highest among Singapore-listed hoteliers.
All Business Segments Seeing Headwinds. Going
forward, its core business segments of high-end
hospitality and high-end property development are likely
to suffer. The former will be affected by a cut back in
discretionary spending amidst the current economic
climate, and the latter from a lack of confidence within
the high-end segment. In view of such uncertainty, the
Group will consolidate and conserve its resources in
FY09. We maintain Fully Valued, TP of S$0.68 premised
on a 60% discount to RNAV of S$1.70 (prev S$1.90).

Wilmar-GS

What surprised us
After adjusting for non-recurrent items, including US$182mn (pre-tax) of
forex gains, we estimate that core FY2008 net profit was 12% ahead of our
forecast, and in line with Bloomberg consensus. The palm and laurics (i.e.
palm oil refining) segment posted better-than-expected margins,
plantations earnings surprised on higher production volume and forward
sales of CPO (crude palm oil) at higher prices and taxation was lower than
expected. 4Q08 Oilseeds and Grains margins were also adversely affected
by collapsing freight rates that Wilmar could not fully hedge. Management
believes that even with the weak economic conditions, food demand
should stay resilient and Wilmar targets volume growth for its
downstream businesses in 2009, while profit margins should be stable.
What to do with the stock
We expect the stock to react positively to the results and analyst briefing at
lunchtime today (Feb 27). Despite the strong results, we are not changing
our 2009E-2010E downstream margin assumptions, and there are no major
earnings revisions. We are also introducing our 2011E. Our Buy rating and
S$3.15 12m P/E-based TP are unchanged. Risks to our target price include
sharply lower CPO prices and if downstream margins disappoint.