SINGAPORE (April 10): OCBC is starting coverage on Straits Trading Co. with a “buy” rating and fair value of $2.73, given the group has developed a solid track record in creating value for shareholders while providing a stable dividend yield.
In a Monday note, lead analyst Eli Lee says the privatisation of ARA Asset Management is a positive move for Straits Trading.
Once the privatisation is completed, Straits Trading will swap its 20.1% stake in ARA for a 20.95% stake in a company that indirectly owns ARA.
Based on the current offer price, Straits Trading will also unlock $48.2 million in cash which can be redeployed.
“Straits Trading will also retain exposure to ARA’s unique value proposition; note that STC will be the only SGX-listed entity that is a significant proxy to ARA after its potential privatisation,” says Lee.
At present, Straits Trading’s assets in Singapore include eight GCBs and nine units in Gallop Green, a freehold residential development.
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OCBC is forecasting for domestic residential prices to bottom and recover in FY18 and believes Straits Trading may explore a divestment of these assets ahead, unlocking more than $260 million in cash to be redeployed accretively.
In addition, significant value may be realised from the potential revaluation and redevelopment of a land site in Butterworth, Penang, belonging to 54.8% owned subsidiary Malaysia Smelting Corporation.
Finally, Straits Trading is the investment advisor for the newly listed NikkoAM-STC Asia ex Japan REIT ETF which Lee sees recurring fee income growth for the latter as the ETF’s AUM increases ahead.
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“We believe STC’s core competitive strength lies in the group’s sharp ability to allocate capital while leveraging on synergies across a wide-reaching eco-system of real estate partners,” says Lee.
Shares of Straits Trading up 8 cents at $2.35. Year to date, the stock has advanced 18.1%
