Growth Plans Remain Intact
Intrinsic Value S$0.290
Uni-Asia Holdings Limited (Uni-Asia) reported 2Q 2013 net profit of US$0.3m on revenue of US$16.3m. 2H net profit and revenue came in at 43% and 41% of our full year forecasts. We maintain our forecasts as a number of anticipated profit catalysts are expected to be realized in 2013. Maintain Increase Exposure.
Results Summary: During 2Q 2013, all three of Uni-Asia’s asset operating businesses i.e. shipping, Japan property investment & management and hotel operations reported positive profits for the first time since 4Q 2011. Net profit was, however, offset by US$0.9m of losses at the corporate level i.e. non-consolidated Uni-Asia Finance due to lower investment income.
The lower investment income was mainly due to less fair value gains recorded in 2Q 2013. Total investment income was about US$0.18m compared to US$1.2m a quarter ago. Hotel operating income also fell by US$2.2m as the company removed onerous contracts from its portfolio. As a result, revenue fell by about US$3.2m year-on-year.
Key Catalysts Remain in Place: We expect investment income to recover in 2H 2013 as the commercial property investment in Hong Kong is likely to reap some gains for the company once it is completed. The company is also on track to complete three small residential projects in Japan within this year and we would expect some gains to be realized out of them. As such, we are of the view that the company is likely to perform better in 2H 2013 compared to 2Q 2013.
Continues to Expand Shipping Business: Uni-Asia announced on 20 August 2013 that it has acquired a 51% stake in a PRC ship management company at a consideration of US$0.255m. The acquisition adds in-house ship management capabilities to Uni-Asia and allows it to offer such services to its clients. As for the ship that Uni-Asia took delivery in Jun M/V ANSAC PRIDE, it has been immediately deployed on time charter for five years. Three more vessels will be delivered over 2014 to 2016.
Results Review: Revenue from the Non-Consolidated Uni-Asia Finance entity fell in 2Q compared to 1Q due to lesser fee income e.g. structured finance fees. Uni-Asia Shipping’s revenue fell quarter-on-quarter due to lower investment income. Charter and other fee income rose to US$3.6m in 2Q FY13 compared to US$3.46m in 1Q FY13. This segment also recorded higher expenses in 2Q FY13 as certain ships incurred higher maintenance costs.
We see deal flow, which in turn determines structured finance fees, as a source of uncertainty with little forward visibility. This risk is in turn mitigated by the company’s attempts to raise charter income by expanding its fleet. We reckon that some of the expenses incurred in 2Q FY13 in the shipping segment are one-off and that expenses should normalize to some extent in 3Q.
Income from Uni-Asia Capital (Japan) Ltd remained relatively stable. The company explained that they are actually looking at several more sites and will reflect them in future presentation slides when confirmed. We can expect rental income from this segment to grow as the third project ALERO Hatagaya is in the process of being leased out.
Forecasts and Valuation: We maintained the bulk of our income forecasts on Uni-Asia as the main profit drivers remain in place. However, we tweaked our balance sheet forecasts to factor in additional debt from the three vessels to be delivered over 2014 to 2016. While higher charter income offset the incremental borrowing costs, the change in capital structure led us to yield a valuation of S$0.290.
Publish date: 27/08/13