Resilient results. ARA Asset Management (ARA) reported a stable set of 1Q09 results. Gross revenues grew by 2% yoy to S$17.8. This is a result of a higher fee income from its listed reits and private equity fund business. Total AUM size remained stable at S$12.6bn. In the reit space, lower base fees from a smaller AUM size were offset by higher performance fees earned due to higher net property income. Operating expenses came in lower by 9% yoy largely due to a fair value gain of certain REIT units received as part payment for their management fees. 1Q09 net profit of S$10m or 1.73 Scts per share formed 27% of our full year projections.

Strong recurring income. We note that topline for 1Q09 was mainly derived from recurring income, a testament of its earnings quality. We estimate earnings to decline 3% for every 10% decline in AUM of its managed reits.

Net cash position of S$28.6m as at 31st March'09. The group continues to be in a strong financial position, which will prove vital in pursuing opportunistic acquisition opportunities or could be used as seed capital in future new funds.

Maintain BUY, TP $0.60. We remain confident of ARA's ability to capitalize on the current declining asset price environment through ARA Dragon fund or launch new opportunistic funds in the near term. Catalyst for a re-rating will hinge on ARA growing its AUM. Maintain BUY, TP S$0.60 based on 10x P/E on FY10F trough earnings.