• First quarter numbers in line
• ARA privatization complete
• Maintain BUY

1Q17 Results Generally Stable

Straits Trading (STC) reported a 1Q17 PATMI of S$21.9m, down marginally YoY versus the S$22.6m in the same period last year. Profits from the real estate segment increased to S$19.2m from S$11.5m in 1Q16 mostly due to fair valuation gains from investment properties, partially offset by the absence of rental income from an office building in Australia divested in Nov 2016.

The group also recorded a net gain on divestment for an Australia hotel in 2016, without which the STC’s hospitality segment would have reported a lower PATMI of S$1.4m in 1Q17. In terms of the topline, 1Q17 revenues dipped 5.0% to S$133.5m mainly due to weaker contributions from the tin mining segment. We deem this set of results to be broadly within expectations.

Holds a Significant Stake in the Now Privatized ARA

The privatization and delisting of ARA Asset Management Ltd was completed on 12 Apr 2017. STC received S$48.2m in cash and is now the only publicly-listed entity in Singapore to hold a significant stake (20.95%) in the privatized ARA. In addition, the group’s asset management company, SRE Capital, was appointed on 28 Feb 2017 as the investment advisor to Nikko Asset Management Asia Ltd for the NikkoAM StraitsTrading Asia ex Japan REIT ETF.

As a seed investor in the ETF, STC stands to gain long term recurring income and attractive risk-adjusted returns. The group’s balance sheet remains robust, with cash and equivalents of S$195.6m as at end 1Q17. Management indicated that they will continue to seek out new investment opportunities in the Asia Pacific region through its 89.5%-owned real estate investment vehicle Straits Real Estate Pte Ltd (SRE).

Maintain BUY with an unchanged fair value estimate of S$2.73.

Source: OCBC Research - 17 May 2017