KIM ENG RESEARCH has initiated coverage of ARA Asset Management with a target price of $1.65.

Analyst Anni Kum recommended a Buy based on a sum-of-the-parts (SOTP) valuation.

“At 13x FY12F PER, ARA appears relatively undervalued compared to its peer, Cohen and Steers, on 19x PER.”

Risks include a drop in market appetite for funds, a decline in asset values of its REITs, and any inability of its REITs to acquire new assets.

ARA Asset Management has a ‘winning formula’ whereby it earns growing fees from managing listed REITs and real estate private funds as assets under management (AUM) grow. The business is scalable, offers geographical diversification and growth opportunities.