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.