Company Overview

Amara Holdings Ltd is a recognized brand name in the property sector. It mainly invests in hotel assets, as well as retail, commercial assets and residential property development. While Amara has a hotel, luxury hotel, retail podium, and office tower in Singapore, growth is coming from substantial overseas developments.

Key assets Amara Singapore, Amara Sanctuary and 100 AM are estimated to provide a base load of recurring earnings (PATMI) of nearly S$26m a year.

Visible growth profile from a pipeline of assets under development: Amara Bangkok (hotel) and Amara Signature, Shanghai (hotel, retail, commercial mixed development)

The successful completion of the Shanghai mixed development and Bangkok hotel will be key factors to its expansion efforts, potentially adding up to S$327.3m in Gross Asset Value from the current estimated S$669.6m, an almost 50% increase.

Earnings growth in FY2014 will be significant as (1) Amara Bangkok is expected to be opened, (2) Amara Singapore’s RevPar will continue to normalize, and (3) residential developments Citylife@Tampines and Killiney 118 will be recognized.

Current price of S$0.565 is more than 50% discount to RNAV of S$1.23, representing a value opportunity. Our target price of S$0.74 is an excessive 40% to RNAV, which could narrow as the company continues to actively manage its hotel assets and embark on new exciting projects, investors should come to appreciate the actual value of these assets. The RNAV of S$1.23 (excludes Myanmar investment) continue to present ample upside to the investor.

Potential catalyst in MOU to develop hotel in Yangon, Myanmar. In April 2013, Amara Holdings Ltd entered into a Memorandum of Understanding with counterparties, Youth Force Hotel Co. and Youth Force Construction Co. Ltd., to develop hotels and real estate projects in Myanmar. The first project would be to develop and operate a hotel located in Dagon Township, Yangon, Myanmar and requires capital investment of S$50mn. While we await further details on the investment, we believe this may provide greater positive impetus to the stock price.

Valuations

Amara is currently trading 1.2x P/B and at a 50% discount to RNAV of S$1.23. However, this can be largely attributed to Amara reflecting hotel assets at historic costs. This is due to a lack of current market transactions and liquidity of such assts.

In our valuation, we adopted conservative estimates of rental rates/RevPar, comparable capital values, relevant capitalization rates and occupancy rates to arrive at individual valuation of the assets. We applied heavier discount to valuation where assets are still under development or are located overseas to better reflect the greater risk undertaken and the potential downside of such projects.

Upon analyzing and performing the valuation of all their relevant assets to arrive at a Gross Asset Value, deducting net debt and applying a 40% discount to the RNAV of S$1.23, we derived a fair value of S$0.74 (Buy), representing over 30% gain over the last traded price of S$0.565. We therefore believe that there is a significant upside to current market price, should the price converge to reflect the full value of its assets.

Risks

Amara Shanghai will not be realized.

With the site located in a prime location, valuation for such development indicates that it potentially contributes 26.3% of Amara’s GAV. Due to the limited number of assets, this development project is a significant value driver. From the track records, it is evident that there is a general lack of transparency regarding the progress of this project.

First foray in Myanmar

It is worthy to note that the management is still actively looking to expand and grow the company and increase income-recurring assets. However, expansion into new geographical market represents risks and uncertainties. Management familiarity with local government and policies is yet to be proven. We did not include the value of this project in our valuation because the acquisition of the land site has not been completed.

Macroeconomic risk

Currently our macro team is expecting a pickup in activity in the US, EZ and Japan, a slight moderation in ASEAN, while the wild card is China as prospects of a hard landing re-emerge. A downturn in the global economy will undoubtedly put pressure on Amara’s hospitality and retail businesses.

Source: PhillipCapital Research - 24 Jun 2013