ARA Asset Management

9 Feb 2009


ARA Asset Management announced an unusual move last month in that it will launch a S$500 million to acquire property assets in China, India and Japan and take advantage of declining property prices. ARA, which is partly-owned by Hong Kong tycoon Li Ka Shing, expects real estate prices to bottom out this year.

The company's privately held fund, Dragon Fund, bought a newly completed office and retail building in Nanjing, China, for RMB 1.6 billion. According to group CEO John Lim in an interview with The Edge on January 19, Dragon Fund still has US$1b to invest in this property down cycle.

It seems ARA has started bargain-hunting. But is its stock a bargain, too? Let us look at its fundamentals to see if it fits our criteria of a value stock.

The company manages Suntec REIT and Fortune REIT in Singapore, Prosperity REIT in Hong Kong and AmFIRST REIT in Malaysia. It also manages several privately-held funds such as a Shariah-compliant fund and its flagship Dragon Fund.

The stock is now trading at a price to book ratio (P/B) of 2.28, which is rather high in such times, when stock prices are mostly depressed. It gets a cross because its P/B is over 1.

Outlook: In its Q3 2008 report, ARA said it expects net profit in FY 2008 to be comparable to that achieved in FY2007. It also said its financial position is strong with low gearing and a healthy cash position.
For not giving specific figures in its forecast, we have to give ARA a question mark.

Dividend Yield: It paid out a final dividend of S$0.038 per share for FY2007. This comes up to a yield of 9.5%, higher than the interest rate you'd get if you park your money in a bank. It gets a tick for dividend yield.

Cash Flow: The company's free cashflow for FY2007 was minus S$13.7m. Its free cashflow had been positive for the 3 years before that. It gets a cross for its negative free cashflow. But its free cashflow turned negative only in FY2007 – it was positive in the years before that. CEO John Lim noted in the interview with The Edge on January 19 that despite the tight credit market, the company's affiliation with Li Ka Shing means it does not have problems when it comes to financing.

Fortune REIT, a trust managed by ARA, recently got a new acting CEO. Justina Chiu, who was just promoted to COO in January 28, was appointed acting CEO one day later after Stephen Chu resigned to take up another position within ARA. Justina Chiu is 28-years-old and the daughter of ARA chairman Justin Chiu.

To recap, ARA gets 2 ticks, 2 crosses and 1 question mark. Analysts surveyed by Reuters have on average an OUTPERFORM call on the stock with a target price of S$0.66. ARA is one of the 98 constituents on the Russell Singapore Value Index.

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