ARA Asset Management: Revving its growth engines

Tuesday, August 25, 2009

Results showed resilience. ARA Asset Management (ARA) reported a stable set of 2Q09 results. Gross revenues climbed 23% yoy to S$20.6m as a result of (i) a stable AUM base and growing performance fees from higher NPIs from its listed REIT vehicles, (ii) 3rd closing of Dragon fund back in June 2008, (iii) one-off S$2m gain from selling of certain units in its managed reits for working capital purposes. Net profit grew by 35% to S$11.9m due to a lower than expected increase in operating expenses. For 1H09, the board declared an interim dividend of 2.3 Scts (higher than 1H08 of 2.17 Scts), translating to a payout ratio of c60%.

In view of the higher than expected operating margins, we have revised up our FY09 EPS by 14% to 7.6 Scts.

Re-rating catalysts - further possible avenues for AUM growth. ARA is set to resume its AUM growth trajectory. A new PE fund targeted at the healthcare sector may be launched in the near term. We estimate total AUM size for this fund to be US$500m, to close by 1H10. In the REIT space, we could potentially see new developments given the more buoyant and improving liquidity in current capital markets.

Contribution from the new PE fund could add 1 Scts EPS assuming full year contribution. This would increase our EPS estimates to 8.1 Scts in FY10 and 8.5 Scts in FY11.

Maintain BUY, TP adjusted to S$1.02 based on SOTP. Our TP is adjusted higher mainly as a result of new fund contribution in 2010. Further upside potential will derive from ARA (i) launching new REITs & PE funds, (ii) larger than projected AUM for its new PE fund.


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