ARA Asset Management

[nervesofsteel]

Its cost are running up faster than its revenue, plus its revenue instability due to volatile price of units issued for fee income.

It spells trouble.

Hi freedom,

Any idea which parameters u based this on? Based on my checks, Ara margins have mostly stayed between 50 to 60% over the past 6 years.
If you do not take into account revenue like performance fees and distribution income from its own funds, its true that cost have run up faster than revenue. However (correct me if im wrong), Ara might be obligated to reward its staff on these revenue (in a way of performance bonuses) ,which explains the rise in cost that is in tandem to overall increase in revenue.

Overall, margins seem rather stable over these past few years.

[freedom]

Hi nerveofsteel,

It is not too difficult to arrive such conclusion.

In FY2013, for 1Q, 1H, or 9-Month, the profit performed worse than the revenue in percentage. Is it not an evidence that cost were not controlled well?

[gutman]

I did a quick calculation to check if the cost is running up faster than the revenue. For Revenue, it includes Finance Income and Other Income. For Cost, I took Administrative expenses + Operating expenses + Other expenses + Finance costs. I have excluded tax in the cost calculation.


Year___________2013 YTD_____2012________2011
Total Revenue____96,623K_____133,530K____122,761K
Total Cost_______37,373K______51,889K_____49,223K
% Cost/ Rev_____38.68%_______38.85%______40.09%

It appears that cost as a percentage of revenue has not been increasing, but actually improves marginally. Based on this figure, I have to say that cost is actually well controlled, and have not been running ahead of revenue.

Please correct me if I am wrong.

[freedom]

I don't know how your facts are so different from mine.

Just use recent result(9 months), revenue was flat, but profit(PBT) dropped 5%, I can't say that margin was better.

[CityFarmer]

Madam Chew Gek Khim's view is important to ARA...

Straits Trading seeks to emulate Blackstone for property funds

Straits Trading Co., an investor in Singapore’s biggest publicly traded property trust manager, is planning “Blackstone-like” funds as Asia’s appetite for real estate investments increases.

Straits Trading last month invested in ARA Asset Management, the property trust manager partly owned by billionaire Li Ka-shing, and set up a joint venture with ARA’s Chief Executive Officer, John Lim, to invest in the property funds. The funds, with an eight-to-10-year time frame, will seek to follow the model of Blackstone Group LP, the world’s biggest manager of alternative assets including real estate, according to Chew Gek Khim, executive chairman of Straits Trading.

“Why can’t we have the equivalent of a Blackstone in Asia? You have the money, you buy the real estate, you REIT it, you exit,” she said in a Singapore interview yesterday. “We have not seen this done in Asia before. There’s a market for it.”
...
http://www.theedgesingapore.com/the-dail...funds.html

[CityFarmer]

I don't know how your facts are so different from mine.

Just use recent result(9 months), revenue was flat, but profit(PBT) dropped 5%, I can't say that margin was better.

Refer to historical 3 years (2010-2012) data, the NPM was deteriorating from 56.7% (2010), 55.5% (2011) and 54.5% (2012), but with small decrements. That is a good reason to believe the NPM will deteriorate further in FY2013.

(not vested)

[opmi]

Mmmm.....Blackstone is in Asia liao leh. No need Asian 'Blackstone'.

In fact, Blackstone China Chairman stepping down to join Nan Fung as CEO.

[Nick]

9M 2012

Core Revenue: $87.67 million (excluded fair value gains / loss)
Operating Profit: $53.38 million (Core Revenue - Opex - Finance Expense)
Ops Margin: 60.9%

9M 2013

Core Revenue: $96.63 million
Operating Profit: $60.27 million (Core Revenue - Opex - Finance Expense)
Ops Margin: 62.4%

But what conclusion can we make ? ARA books in revenue but it may not necessarily be in cash. If it books in revenue in the form of listed equity and its fair value declines with time, it does represent margin erosion albeit in the future. So I don't think there is any easy way to answer this question.

(Vested in Odd Lots)

[nervesofsteel]

Thanks freedom and Cityfarmer for your replies.

I always welcome feedback that are not so 'rosy'. However, I would like to point out a few things.

1) I agree that 9m13 margins do not look as pretty but might we be too quick to judge that cost are not controlled well just based on this recent 9 months and that's only a 5% decline in profitability.

2) Second, the following are the margins for past 6 yrs. 2012 (54.4%)
2011 (55.6%) 2010(56.7%) 2009(56%) 2008(52.4%) 2007(54.8%).Like I mentioned earlier, its between 50 to 60% over past 6 yrs. I agree with Cityfarmer that there are slight decrements over past 3 yrs but if you look at the further picture, It looks rather stable if compared over a 5 to 6 yrs timeframe. The decrements are so slight anyway, so I doubt this is a cause for concern.

Like what Nick says, its not easy to pinpoint if there is a margin erosion as there are many factors to consider. I think its also important to factor in what constitute this admin expenses. I am more interested in finding out if its margins can remain this stable without performance payouts from its private funds and gain in valuation of reit units for disposal.

[CityFarmer]

Thanks freedom and Cityfarmer for your replies.

I always welcome feedback that are not so 'rosy'. However, I would like to point out a few things.

1) I agree that 9m13 margins do not look as pretty but might we be too quick to judge that cost are not controlled well just based on this recent 9 months and that's only a 5% decline in profitability.

2) Second, the following are the margins for past 6 yrs. 2012 (54.4%)
2011 (55.6%) 2010(56.7%) 2009(56%) 2008(52.4%) 2007(54.8%).Like I mentioned earlier, its between 50 to 60% over past 6 yrs. I agree with Cityfarmer that there are slight decrements over past 3 yrs but if you look at the further picture, It looks rather stable if compared over a 5 to 6 yrs timeframe. The decrements are so slight anyway, so I doubt this is a cause for concern.

Like what Nick says, its not easy to pinpoint if there is a margin erosion as there are many factors to consider. I think its also important to factor in what constitute this admin expenses. I am more interested in finding out if its margins can remain this stable without performance payouts from its private funds and gain in valuation of reit units for disposal.

I do agree that it isn't a cause for concern but we need to recognise the fact of the slow NPM erosion in the past few years.

To support the view, the 3 years CAGR for revenue and net earning were 15.7% and 14.6%, while 5 years CAGR were 16.6% and 16.4%. The gap is widening but still not for any concern. Another fact is the net earning CAGR of about 15-16% is always a good number for investors.

I am monitoring ARA for a while, all seemed right, except the price.

(not vested)