Brokers' take

Straits Trading Company | Buy Target price: S$2.73 Apr 10 close: S$2.34 OCBC Investment Research, Apr 10

WE initiate coverage on Straits Trading Company Limited (STC). We use a sum-of-the-parts methodology and conservatively apply a 15 per cent discount to its RNAV of S$3.21 to derive our fair value estimate. We believe STC's core competitive strength lies in the group's sharp ability to allocate capital while leveraging synergies across a wide-reaching ecosystem of real estate partners. As a result, STC has developed a solid track record in creating value for shareholders while providing a stable dividend yield, notwithstanding the group's involvement in seemingly disparate sectors (that is, real estate and resources) and its participation across various real estate investment vehicles.

We see the privatisation of ARA Asset Management to be positive for STC. Once completed, STC will swop its 20.1 per cent stake in ARA for a 20.95 per cent stake in a company that indirectly owns ARA. Based on the current offer price, STC will also unlock S$48.2 million in cash which can be redeployed. STC 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.