UNI-ASIA: Catalysts for 65% upside are .....

Excerpts from KGI Research report

Analyst: Joel Ng

Valuation & Action Hotel Vista Premio Yokohama Minato-Mirai, a part of the hotel chain operated by Uni-Asia which is forecast to generate US$2.0m to US$2.5m in recurring net profit a year. Photo: Company We initiate coverage of Uni-Asia with a BUY and a TP of S$1.92, based on our Sum-of-the-Parts (SOTP) valuation of its 3 business segments. Our TP is an implied 0.5x FY17F P/B and 8.2x FY17F P/E. Uni-Asia is positioned to ride the growth in its 3 business segments as 1) we expect a dry bulk shipping recovery 2) completion of its second Hong Kong property which we estimate would yield a US$5m profit this year and 3) increase in hotel rooms under operations ahead of two major sporting events in Japan – the Rugby World Cup 2019 and Tokyo 2020 Olympics. US$’m 2015 2016 2017F 2018F 2019F Revenue 77.1 86.3 90.5 96.3 102.1 Profit after tax and MI (PATMI) 2.7 -14.2 7.8 6.6 7.3 Core PATMI 4.1 -1.8 7.8 6.6 7.3 Core PE 9.5 -- 5.0 5.9 5.4 Dividend yield (%) 5.4 2.6 3.4 3.4 3.4 Price/book (x) 0.3 0.3 0.3 0.3 0.3 Source: KGI Research Risks Uni-Asia’s shipping business (40% of Uni-Asia’s FY16 revenues) is cyclical in nature. The dry bulk segment has been particularly challenging in the prior five years due to an oversupply of vessels in the industry.

FY16 was particularly challenging for Uni-Asia given that the dry bulk shipping main index dropped to an all-time low. However, we believe the worst is over for the group as charter rates in the dry bulk sector have begun to pick up in recent months.

In addition, Uni-Asia’s two other business segments – property and hotel management – are expected to contribute meaningfully from FY17 onwards. We estimate that its hotel management alone can generate US$2.0m to US$2.5m in recurring net profit p.a. when it reaches 3,000 rooms under management by FY19.

In addition, its two Hong Kong properties can each contribute at least US$10m in net profit over the next two years.

Free cash flow has been weak since the global financial crisis in 2008/2009 as the group built up its shipping fleet.

However, the group has since stopped ordering new vessels and only has four dry bulk carriers under a JV that are due for delivery in 2018-2019.

Its effective ownership is only 18% for the four vessels, and as such, requires minimal capital outlay.