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Thursday, February 4, 2021 – 12:50 pm
UPDATED Thu, Feb 04, 2021 – 3:42 PM
DBS Group Research has initiated hedging of the main board trading conglomerate Straits Trading Company with a “buy” recommendation and a S $ 3.50 price target.
This represents a 50 percent increase from the counter’s Feb. 3 close of S $ 2.33.
Shares in Straits Trading were trading at S $ 2.50 before the midday break Thursday, up S $ 0.17 or 7.3%. The stock continued its upward trajectory in afternoon trading, rising S $ 0.38 or about 16.3 percent to S $ 2.71 as of 3:27 pm.
“We see compelling value in the company, trading at a price of just 0.6 times the net asset value, and an even greater discount to its realizable value,” wrote DBS analysts Chung Wei Le and Derek Tan in a research note Thursday.
Among other things, analysts believe there is “significant value to be drawn” from ARA Asset Management’s (ARA) potential listing this year or next.
ARA Group CEO and Co-Founder John Lim announced in September 2019 that the Warburg Pincus-backed real estate fund manager is exploring a double listing that would include Singapore.
“We see great value in (Straits Trading) investments and we believe the market is discounting heavily due to its complex corporate structure,” said DBS.
Straits Trading has a 22.1% stake in ARA. It also owns 89.5% of the real estate investment vehicle Straits Real Estate (SRE), a 30% stake in Far East Hospitality Holdings, an estimated 10% stake in Suntec Real Estate Investment Trust and a 54.8% stake. in Malaysia Smelting. Corporation.
DBS called the ARA investment the “crown jewel” of Straits Trading, adding that investors currently get the asset “for free.” “We expect (Straits Trading) to trade at a higher premium than its past valuation multiples, as the listing of ARA becomes imminent,” analysts said.
They estimate that ARA’s current valuation is S $ 3.8 billion and Straits Trading’s stake in ARA is worth S $ 2.06 per share.
Additionally, Straits Trading’s core real estate business has been producing stable recurring cash flows, DBS noted.
He added that SRE has been a key growth engine for Straits Trading, increasing its assets under management (AUM) at a compound annual growth rate of 33.9 percent from S $ 358 million in FY14 to S $ 1.78 billion in the first half of 2020. The growth in AUM came from SRE investments, mainly in Australia and Japan, DBS said.
Despite the Covid-19 pandemic affecting Straits Trading’s other businesses, SRE’s portfolio was the most resilient within the group, contributing 81 percent of its earnings before interest, taxes, depreciation and amortization in the first half of 2020, analysts noted.
“We estimate the initial return on SRE’s portfolio to be around 6.5 percent and in high-quality diversified assets. Its assets are diversified across six geographies (Australia, China, Japan, Malaysia, South Korea and the United Kingdom. Kingdom) and four sectors (retail, residential, office and logistics), “said Mr. Chung and Mr. Tan.
They added that Straits Trading is still on track to grow its assets under management to S $ 2.4 billion by 2022.
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