Yesterday evening, as I run my stock screening via Bloomberg, ARA HTrust comes out to be the most oversold among Singapore listed stocks yesterday with a RSI of 8.2. This is its most oversold level since listing. ARA HTrust has tumbled approximately 22% from an intraday high of US$0.900 to close at US$0.705 yesterday, which is the lowest close since IPO.
Why does it attract my attention? Read on for more.
A) Chart – Selling pressures may ease as oversold pressures escalate
Based on Chart 1 below, ARA HTrust is entrenched in a downtrend. All the exponential moving averages (“EMAs”) are trending lower with death cross formations. However, indicators such as RSI and MACD are near, or at all time oversold levels. For example, RSI closes at 8.2 yesterday, all time low since IPO. At 8.2, this is also extremely low on an absolute basis. Although there is no rule to stipulate that RSI cannot go below 8.2, suffice to say that, on the balance of probabilities, near term downside may be capped as oversold pressures build. In addition, ARA HTrust has been bouncing around US$0.700 and this support level looks good on both chart and absolute basis (typically stocks find support on a round number).
Near term supports: US$0.700 / 0.675 / 0.650
Near term resistances: US$0.735 / 0.745 – 0.750 / 0.775
Chart 1: ARA HTrust has fallen 22% since its record high US$0.900
Source: InvestingNote 5 Mar 2020
B) Analysts are positive with target prices ranging from US$0.95-1.25
Based on Figure 1 below, average analyst target is around $1.10. Analysts estimate that ARA HTrust may distribute US$0.070 – 0.074 / share as dividends in FY20F. If I conservatively use US$0.07 as the estimated dividends per share to be distributed in FY20F, this works out to an estimated dividend yield of around 9.9% given the closing price of US$0.705 yesterday. All in, total potential return amounts to around 66%!
Figure 1: Average analyst target $1.10; total potential return 66%!
Source: Bloomberg 5 Mar 20
C) Other noteworthy points
ARA HTrust has completed the acquisition of its three new Marriott acquisitions on 17 Jan 2020 and this is likely to contribute to their net property income. In addition, ARA HTrust has set up S$800m debt program in Jan 2020. According to KGI’s research report, they cited that ARA HTrust’s management intends to acquire more Marriott or Hilton hotels.
As with most companies, there are numerous risks that ARA HTrust faces. Just to cite a couple of risk factors (readers can refer to the analyst reports HERE for more risks that ARA HTrust faces)
a) Macro outlook has deteriorated
Given the supply headwinds, compounded by Covid 19 which is likely to have an impact on domestic and overseas travel, the macro outlook for ARA HTrust has deteriorated. It is noteworthy that since news of Covid 19 spreading in countries like South Korea broke out on the weekend of 22–23 Feb, ARA HTrust’s share price has slumped 18% from US$0.860 on 21 Feb to close US$0.705 on 4 Mar 2020. Although part of the decline can be attributed to its weaker than expected results, I think part of the decline may also be attributed to the spread and the fear of Covid 19 worsening in U.S. and overseas resulting in a drop in domestic and overseas travel. If this worsens further, it may have an adverse impact on current and future net property income and subsequently distributions.
b) Illiquidity is an issue
Average 30-day volume for ARA HTrust is merely 320K shares per day. This is an illiquid stock where it is not easy to enter or exit with a meaningful position. Furthermore, it may be subject to large price movements should there be sudden buying or selling interest.
c) Other risks include U.S. tax changes; forex risks etc
Other risks include U.S. tax changes and forex risks as ARA HTrust’s earnings and distributions are denominated in US$.
ARA HTrust captures my attention due to its extremely oversold nature, coupled with an attractive potential capital upside and good dividend yields especially in current low interest rate environment. However, it is noteworthy that its business faces certain headwinds. Illiquidity is also an issue.
Notwithstanding the above, it is noteworthy that I am neither familiar with ARA HTrust’s fundamentals, nor do I have direct access to management (as my main basis is more on its oversold nature). Readers who are interested in ARA HTrust should view ARA HTrust’s announcements on SGX or on their website. Furthermore, you can view the analyst reports HERE.
P.S: I have highlighted to my clients on ARA HTrust past two days where it is trading around US$0.700-0.705. I am vested in this stock for trading purpose.
Please refer to the disclaimer HERE