Uni-Asia Group - Maybank Kim Eng 2019-12-18: Finding Strength In Diversity


Uni-Asia Group - Finding Strength In Diversity

Uni-Asia Group - Company Description

  • UNI-ASIA GROUP (UAG, SGX:CHJ) is an alternative investment company with multifunctional roles including that of asset owner and manager, operator, co-investor, ship finance arranger, broker and fund manager. The group’s investments are mainly in cargo vessels and properties in Hong Kong and Japan.
  • To enhance its investment returns, Uni-Asia Group also provides integrated services for its assets, including acting as operator for commercial maritime vessels and its commercial, residential and hotel properties.
  • Uni-Asia Group’s property and hotels business can be divided into three sub-segments:
    1. Property investment in Japan
    2. Vista Hotel management
    3. Property investment ex Japan

Uni-Asia Group - Company Milestones

  • Incorporated in March 1997 with a focus on finance arrangement for companies in the transportation sector.
  • In 2000, Uni-Asia Group established an investment partnership with Grosvenor Asia to invest in residential properties in Tokyo.
  • In 2005, Uni-Asia Group acquired all the shares of hotel operating company Sun Vista and went into the hotel operating business.
  • In 2012, Uni-Asia Group successfully completed its first small residential project ALERO Shimo Meguro.
  • In 2018, Uni-Asia Group invested in three Hong Kong property development projects, taking the total number of Hong Kong property projects to six.
  • In 2019, Uni-Asia Group undertook a SGD5.4m private placement to finance its property projects and a 1-for-2 bonus issue to improve trading liquidity of its shares.

Japan property investments yield good returns

  • In Japan, Uni-Asia Group focuses on the development of small residential property projects under the “ALERO” brand. While management believes there is upside potential in this niche segment, it is also exploring various property asset management opportunities in Japan to expand its revenue base.
  • For its hotel operation, it will be opening one hotel in Dec ‘19 in Fukuoka and four more hotels in 2020 to take advantage of the upcoming Tokyo 2020 Olympics.

VISTA Hotel Management

  • Its subsidiary, Vista Hotel Management (VHM) operates hotels in Japan under the Hotel Vista brand. The hotel rooms under this chain typically have stylish and functional layout design including the separation of bathroom and washroom. About 54% of guests are corporate clients.
  • The group’s modus operandi is to lease a hotel from the hotel owner for a fixed and/or variable payment and operate them. Such contracts typically come with non-termination clauses and long-term tenure of more than five years.
  • As at Sep ’19, the number of rooms under operations totalled 2,515 among 15 properties, a slight dip compared to last year due to the closure of one hotel. Nevertheless, its hotel income rose 25% to USD60.4m in 9M19, driven by an improvement in operational performance.
  • The group will be opening one new hotel in Dec ‘19 in Fukuoka and four more hotels in 2020. This brings its total room count to 3,401 in 20 properties, which is well-placed to ride on the expected tourist surge from the upcoming Tokyo 2020 Olympics.
  • Hotel income provides a stable recurring and operating cash flow base for the group with growth tied to the increasing number of hotel rooms that the group brings under its belt.

Small exposure to Hong Kong property market

  • The group’s property investment ex-Japan business is managed by its Property Investment Department based in Hong Kong, which mainly invests in Hong Kong commercial projects as part of a consortia, usually led by First Group Holdings. To-date, Uni-Asia Group has invested USD2m-10m for less than 20% equity interests in six Hong Kong property projects.
  • However, escalating civil unrest in Hong Kong is dampening business sentiment, which could adversely affect its commercial assets in the short run. The group will continue to monitor the situation and start pre-sales of their three Hong Kong property projects depending on market conditions.
  • Nevertheless, the group is monitoring the situation closely and will start pre-sales of their three remaining Hong Kong property projects accordingly.


  • With ownership interests in 18 dry bulk carriers (handysize and supramax) and four containerships in its fleet, Uni-Asia Group’s shipping division provides one-stop integrated ship-related investment and service solutions, which generate recurring income from charter and management fees, as well as ad hoc fee income.

Shipping industry outlook

  • According to Clarksons Research “Dry Bulk Trade Outlook” October 2019 issue, the bulk carrier market in 2020 is forecast to be fairly balanced in terms of demand and fleet growth. Other factors including reduced speed, scrubber retrofit time and increased recycling may lend support to the bulker market.
  • While some of the group’s vessels that are on short term index-linked charter would be benefit from the improving bulker market, there is normally a time lag before this is translated to better charter rates.
  • Despite the rising trend in dry bulk charter rates, the Baltic Handy size Index (BHSI) for most of the 10 months of 2019 was below that of 2018.

Calibrating its existing shipping portfolio

  • The shipping segment remains a drag on the group’s performance amidst persistent headwinds in the bulk carrier market. As such, Uni-Asia Group will review the current shipping assets and dispose older ships, while exploring options to modernise the fleet. At the same time, the ship management team will continue to optimise chartering of its ships to strengthen its recurring charter income base.

Uni-Asia Group - Private placement

  • On 4 April 2019, Uni-Asia Group issued 5.42m new shares at SGD1.08 apiece via a private placement, raising gross proceeds of SGD5.85m. So far, the group has utilised about SGD2.5m for small residential property development projects in Tokyo under the ALERO brand name. See Uni-Asia Group Announcements.

Uni-Asia Group - Bonus share issue

Firm dividend policy

  • The group intends to distribute at least 35% and 40% of FY19 and FY20 net profit (including fair value and realised gain/loss from investments) as dividend semi-annually. This will translate to a compelling yield of 6%. See Uni-Asia Group Dividend History.

Undemanding valuation limits downside risk

  • Uni-Asia Group is trading at an undemanding 5.5x FY19E P/E and 0.35x P/B, based on Bloomberg consensus estimates. The steep discount reflects market concerns over its shipping assets, which represented 61.5% of Uni-Asia Group’s NAV (as at Sep19) excluding right-of-use assets.
  • Since 2010, the group’s shipping portfolio has been hit by the various industry headwinds forcing it to impair its vessels accordingly every year. That said, management believes the current valuation of its fleet is fairly low, and any further impairments would be limited. In addition, its containership investments have been completely written off and would not incur any more fair value losses.
  • The group’s asset allocation is stable, with 61.5% of the group’s total assets in shipping, 11.7% in property, and the rest in cash and others.
  • Its shipping assets are meant to provide recurring income from charter income, and fee income from managing joint-investment ship portfolio and therefore will remain as core assets.
  • On the other hand, property assets are “recycled” for gains to boost the group’s performance. Thus, property assets generally form a smaller percentage of the group’s total assets.

Key Risks

Impact of IFRS16 - Leases.

  • Operating expenses have increased due to the adoption of the IFRA 16 accounting standard. That said, the combination of a straight-line depreciation of the right-of-use asset and the effective interest rate method applied to the lease liability results in a decreasing ‘total lease expense’ throughout the lease term. This effect is sometimes referred to as ‘front-loading’ of expenses.

Uni-Asia Group’s shipping business.

  • The shipping segment remains a drag on the group’s performance amidst persistent headwinds in the bulk carrier market. The group’s shipping division accounted for about 30% of FY18 revenue, which is cyclical in nature. In the event of a downturn, this may result in further impairments to its shipping assets.

Hong Kong property.

  • While it is too early to conclude whether the Hong Kong commercial property market would be adversely affected by the civil unrest, management is monitoring the situation closely. In particular, the uncertainty surrounding the group’s commercial projects in Hong Kong could weigh on the group’s earnings in the near-term, as the bulk of investment gains from its earlier three Hong Kong projects have already been realised.
  • Click on view full report button below for complete analysis in PDF report.
  • See also Uni-Asia Group Share Price; Uni-Asia Group Target Price; Uni-Asia Group Analyst Reports; Uni-Asia Group Latest News.

Eric Ong Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-12-18
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