ARA Asset Management

[mrEngineer]

Sold my ARA. Good luck to those still holding! Reason of selling is simple: P/B > 7x.

Will buy back when drop back to 1.5. Huat ar!

[hongonn]

Huh? What if the price drop to 1.51 and surge again and never look back. How? I think it will be quite stressful for me to use tactic like this. I will glue my eye on the price fluctuation trying to buy back.

Checked on the PE yes i do felt the price now is a bit overvalued, PE 23x based on my calculation. Very tempting to sell but who knows.

Mr Engineer sir, please share with me the buy back part. If it never reach 1.5 or maybe 1 cent different you will just let go the stock? Thanks.

[newborn1000]

Hongonn.........You dont have to keep looking at the price.........

Mostly likely, the trade is a limit order, just key buy @ 1.50.........

Yes, if it never reach you not suppose to buy it........

[mrEngineer]

Huh? What if the price drop to 1.51 and surge again and never look back. How? I think it will be quite stressful for me to use tactic like this. I will glue my eye on the price fluctuation trying to buy back.

Checked on the PE yes i do felt the price now is a bit overvalued, PE 23x based on my calculation. Very tempting to sell but who knows.

Mr Engineer sir, please share with me the buy back part. If it never reach 1.5 or maybe 1 cent different you will just let go the stock? Thanks.

Hi Hongonn,

there are plenty of 'what ifs' scenarios and it will be difficult to tell whether I am right or wrong yet. However I am selling because based on rule of 70, ARA has to consistently perform more than 30% ROE for 5 years in order to reach P/B = 1 which is extremely tough. For my case, it is better to secure profits and relook for other opportunities.

As for the repurchase portion, I could set a buy limit but ultimately it has to depend on the economic conditions and the sentiment then. It is just my opinion that below 1.50 is fair value to pay before the next dividend payout.

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To add on, it is the same when u intend to buy with margin of safety. For eg if u think e fair price to pay for ara is $1. U want some margin of safety like 20% and u decided to buy when it is 80cents. However, e stock just hovers around 83cents. Do u still want to follow your plan? What if it drops further to 76cents? No right or wrong answer here. In e worse case, u lose this opportunity, how would u know u won't not have opportunity elsewhere?

[hongonn]

Hi Mr Engineer,

Thanks for the explanation. My concern is whether should we make the buy and sell calls by only looking at the price factor alone. Also to prevent to kick myself in future what if the stock rise much more than the current price level.

Imagine a person not buying Apple at $12 in 2004, because it exceeds maybe the fair price of $10, even though he likes ipod so much. How would the person feels when it hits $300?

Actually is the margin of safety 15%, 20% or 30% so important if you think that you have found a gem?

PS: Above just for example, ARA is not way comparable or so gem.

[mrEngineer]

crazy rise from 1.62 to 1.72.. whats up? Any insider news?

[corydorus]

I did a simple brain math. Assuming current div amount holds And price increase to 2.2 it still 3%. For a business that sure earn and running at fast growth pace ... At this price is still good.

[Contrarian]

> I did a simple brain math. Assuming current div amount holds And price increase to 2.2 it still
> 3%. For a business that sure earn and running at fast growth pace ... At this price is still good.

The director said at last AGM, that dividend will likely keep at FY09 levels. Whatever cash they accumulate will be used to fund growth.

The RUMOUR I hear is that there is news of another REIT listing going to managed by ARA early this year. Could be a RETAIL REIT.

The CEO certainly picks his bets well, his CACHE REIT is definitely 1 class higher above the Temasek REIT. The CWT is a well established player, and the industrial properties are not simple industrial space....

I am sitting tight...

[mrEngineer]

For a business that sure earn and running at fast growth pace ...

I have been asking this question in my mind again and again. How do they sustain 35% of ROE for even next year? What are the growth opportunities they can tap on? The only visible ones are MBFC2 and the Islamic REIT which they have been talking for years.. Only left with Fortune REIT and Cache Logistic to do some magic. Unless they are able to launch a new REIT next year.

[redcorolla95]

This is a great business.
If they and their funds never bought anything else for the rest of their existence, we have a 2.6% dividend yield + annual growth in rent of about 3-5% or inflation. Over a long enough period, assuming Singapore & HK are ok property markets, growth in rent should at least equal inflation, so this is definitely better than bonds - esp the recent ones out at retail investors.

They generally grow by adding new assets. So either their funds by more buildings e.g. Suntec Reit buys a chunk of MBFC, or they start a new fund like Cache. So since most property in Sg, HK, Msia, China isn't already in a REIT, they're quite far from their growth limits. ROE is high because ARA is not spending very much capex to add a new building - the funds spend the capex, and then ARA even charges fees for doing the work to add new buildings.

So returns = inflation + 2.6% (current dividend yield) + (assets they keep adding - as 2010 has been a year when they grew very nicely).

There are 2 issues: 1. when property prices fall, but then they're not on the hook for rights issues refinancings the REIT holders are - since fees are based on assets not net-assets. 2. when they have to invest some of their own money into their funds, so it's very unlikely that their funds can give them 35% returns.

PB is not really relevant for valuing such a company.
http://pages.stern.nyu.edu/~adamodar/New...inants.htm has a mathematical derivation, but the point is that when ROE is much higher than the cost of equity, the expected book value is much higher than 1. You can examine Buffet's largest positions e.g. Coke, P&G etc - the book value is far above 1.

Unfortunately, the great business is not as cheap as it used to be anymore, so I'm slowly and sadly exiting, and quite likely to miss out on some more up-side.