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ARA Asset Management: Re-initiating long position.

Friday, October 2, 2015

ARA Asset Management was a stock I fully divested more than 3 years ago. 

On hindsight, it was a mistake because deviating from a familiar practice, I did not keep a core position for income. I suppose I was a bit more active as a trader in the past.

I have been waiting for a chance to get back in and the recent plunge in its stock price has provided me with an opportunity to do so.

ARA's EPS for 2014 was 10.35c and DPS was 5c. So, they paid out about 48% of earnings as dividends. 

When looking at ARA's PE ratios in the last few years since 2012, we see a range of about 12x to 22x. Median PE ratio is, therefore, about 17x.

ARA's 1H 2015's EPS came in lower at 4.19c. Could 2H 2015 do better for FY 2015 to beat FY 2014's EPS in aggregate? Of course, your guess is as good as mine. 

If we should simply annualise 4.19c, we get a full year EPS of 8.38c. Multiply that by 17x and we get a price I might buy at which is about $1.42 a share.

At $1.32 a share, I am re-initiating a long position at a PE ratio of 15.75x which is a bit lower than the median of 17x identified earlier. 

Of course, if ARA should deliver an EPS of 10c for FY 2015, $1.32 a share would look much cheaper then (with a PE ratio of 13.2x).

Dividend yield, assuming DPS of 5c remains unchanged, is almost 3.8% with a purchase price of $1.32 a share.

Another stock for income and growth? Good to accumulate at lower prices? Perhaps so.

Related post:
ARA: Divestment $1.30 and $1.32.


Sillyinvestor said...

Hmm AK,

I was looking at it too. But if we look at PE, yield and payout ratio, wouldn't OCBC be a better play?

Have u look at it? Since u are looking at finance companies ...( ARA is sort of a fiancé company in my eyes)

AK71 said...

Hi Mike,

I have only briefly looked at OCBC, DBS and UOB. This was when I was deciding whether to add to my investments in Hong Leong Finance and Singapura Finance. I decided to buy into the two finance companies partly because they were trading at huge discounts to NAV. In fact, the discount is even bigger now. Another important idea is that an increase in interest rates should benefit the finance companies more because a bigger percentage of their income is from interest income when compared to the banks.

For ARA, I like the fact that much of their income is recurring and somewhat predictable because of their property management business. They also manage property investment funds and act like an incubator before divesting the properties for gains. I am not sure that comparing ARA's numbers with OCBC's is appropriate because they are doing different things.

At this moment, I am not sure if OCBC, DBS or UOB is a better investment.

YP said...

Hi AK,
I have also been looking at Hong Leong Finance & Singapura Finance attracted by low Price to NAV as well as relatively good yields. However, I find their liquidity low and Hong Leong Finance profit has been falling in FY14. What do you make of these two points i.e. low liquidity and falling profit?

AK71 said...

Hi YP,

These finance companies will start to do better when interest rates normalise. Interest income forms the bulk of their income. About 80%. NIM has suffered badly in the low interest rate environment we are experiencing now. They are not as resilient as the three local banks for sure which have other sources of income.

Low liquidity does not bother me. I remember when I bought into Old Chang Kee at 26c, an ex banker and now blogger told me he wouldn't touch it because of low liquidity. There are more important things to consider than liquidity especially if we are long term investors.

AK71 said...

ARA to carry out a renounceable underwritten rights issue of 152,127,196 new ordinary shares of par value S$0.002 each in the capital of the Company at an issue price of S$1.00 for each Rights Share, on the basis of eighteen (18) Rights Shares for every one hundred (100) existing ordinary shares.

The Company intends to utilise S$60.0 million of the net proceeds from the Rights Issue to repay in full the S$60.0 million shareholder loan provided by The Straits Trading Company Limited on 23 April 2015 and maturing on 3 November 2016 (the “STC Shareholder Loan”). The STC Shareholder Loan was used to fund the Company’s investment in Suntec Real Estate Investment Trust (“Suntec REIT”) in May 2015, thereby increasing the Company’s strategic stake held in Suntec REIT.

The Company intends to utilise part of the net proceeds from the Rights Issue for strategic investments and/or seed capital for the existing and new funds which it manages. The Company believes that the development of various private real estate fund franchises ranging from development-focused products to core investment products is further gaining traction, and the Group continues to evaluate investment opportunities on an ongoing basis, including, among others, in the target markets of Singapore, China, Malaysia, Hong Kong, South Korea and Australia.

Anonymous said...

Will there be blog about this? Hee
Buying more ma AK?

AK71 said...

Hi becks,

I don't think I will blog about the rights issue. ;p

I will take what I am entitled to and also apply for excess rights. ;)

Roff Ng said...

Dear AK,

ARA has been going downward since the announcement of right issue. What happen? Today price is $1.17, good to buy at this price?

Roff Ng said...

ARA has been going downward since the announcement of the right issue. What happen? At today price of $1.17, can buy?

AK71 said...

Hi Roff,

I am in no hurry as market sentiments are pretty negative. I would like to add to my position closer to $1.00 a share. Wishful thinking? Maybe. ;p

AK71 said...

Rights applied: 1,440.
Excess rights allotted: 860.
Total: 2,300.

Siew Mun said...

Rights applied: 900.
Excess rights allotted: 800.
Total: 1,700.

Potatoish said...

Hi AK,

Thanks for dropping by last weekend!

I have been looking at ARA recently and oh boy it recently rebounded pretty well from the 52 weeks low $1.01 to $1.19(today).

After the storm (rights issue) the dust seemed to have settled down. I haven't really went to check why does ARA a cash rich company need to issue rights. But technically speaking from the charts below $1.25 seem like good entry from historical data.

I am still trying to time my entry(humans are greedy :P)

Did you managed to grab some at $1?


AK71 said...

Hi JQ,

Hope you enjoyed the workshop. ;)

Consistent with my blog post in December, I bought more ARA as its share price declined. I got some closer to $1 too.

"ARA's rights issue which followed not long after was unexpected but I took up my entitlement and applied for excess rights as I looked at it as an opportunity to buy more on the cheap. I will probably buy more if the stock declines further in price."
2015 full year income from non-REITs.

AK71 said...

A consortium of investors including the company’s founder and U.S. private-equity firm Warburg Pincus LLC is considering a buyout offer for Singapore-listed real-estate fund manager ARA Asset Management Ltd., according to people familiar with the situation.

ARA Asset Management, which currently has a market capitalization of 1.4 billion Singapore dollars (US$1 billion), manages property assets valued at S$30 billion. It has properties across Asia including shopping malls, offices and logistics facilities held through real-estate investment trusts and private funds.

The buyout consortium will be led by ARA’s founder, John Lim, and includes other existing shareholders whose total holdings represent a combined 47% of the shares outstanding, the people familiar with the situation said.

ARA called for trading in its shares to be halted pending an announcement Thursday, after the Singapore Exchange asked the company about unusual trading activity in its shares.

The stock had risen 6% Thursday to S$1.495 from Wednesday’s close of S$1.410 before the company called for a trading halt.

Mr. Lim owns a 19% stake in ARA, while Straits Trading Co.—a resources and property firm—owns a 20.1% stake. Hong Kong tycoon Li Ka-shing’s Cheung Kong Property Holdings Ltd. owns a 7.84% stake.


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