GLP

GLP: Deutsche initiates with Buy with TP $3.10, and expects FY15-18e reported and operating earnings CAGR of 20% and 19% respectively, driven by a strong development pipeline and rapid ramp up in the fund management business.

For its fund management business, which has been growing exponentially since 2011, could likely contribute 22-28% of operating income in the next 3 years (from 6% in FY13). With GLP planning to establish CLF 2 in China in the next 6 months, there is potential upside to Deustche’s current fee income estimates.

In the past two years, the group has raised significant capital through the JREIT spin-off and Chinese stake sale, with a net cash balance sheet as of 3QFY15, but a deteriorating ROE as a result. With an expanded development pipeline and a more significant capital deployment schedule, along with increasing recurring income from the fund management business, the group’s ROE should return to double digits by FY18E.

The stock is currently trading at 32% discount to FY16e SOTP and 1x P/B, close to one SD below historical average level and represents undemanding valuation.