Report by Maybank Kim Eng Retail Research

UNI-ASIA GROUP’s (UAG) 1Q19 net profit grew 9% to $3.5m, reaching 45% of sole full-year street estimate.

Revenue climbed 26% to $32.2m, bolstered by hotel income (+45% to $18.6m) as its room inventory rose by 663 to 2,004, offsetting falling charter income (-11% to $9.1m) following the reduction in vessels and a weak dry bulk market.

MichioTanamoto2.15Michio Tanamoto, executive chairman of Uni-Asia Group. NextInsight file photo.Operating margin improved 4.9ppt to 25.1% due to the $4.2m gain on disposal of a hotel through a consolidated Godo Kaisha entity.

Bottom line was eroded by a $1.2m lease interest expense arising from new SFRS(I) 16 accounting standard and $1.6m share of profit from the hotel disposal paid to Tokumei Kumiai investors.

Operating cash flow strengthened to $9.6m (1Q18: $4.4m) as fixed lease payments were reclassified to financing cash flow. Net gearing improved slightly to 1.23x (Dec ’18: 1.36x).

On 25 Mar, UAG completed a placement of 5.4m new shares at $1.08 apiece to a group of institutional investors, comprising Judah Value Activist Fund, Hibiki Path Value Fund, Golden Hill Investments, as well as several family offices, corporate and high net-worth investors. Net proceeds of $5.4m will be utilised for potential property and hotel projects.

UAG currently trades at an undemanding valuation of 5.4x FY19e P/E and 0.3x P/B, supported by 6.3% yield. As such, we are adding the stock to Market Insight's Value basket at entry price of $1.09.

-- Maybank Kim Eng

Going forward, the worst could be over for UAG as its containerships have been written down to nil, while book value of other ship investments is also low after several years of provisions, limiting further valuation downside.

Moreover, adjusted EBITDA (FY18: $36.2m, FY17: $23.3m, FY16: $19.2m) as well as operating cash flows (FY18: $17.0m, FY17: $14.1m, FY16: $12.33m) have been improving, suggesting modest growth in core operations, excluding non-cash losses.

The properties and hotels segment has also made consistent contributions despite the shipping slump, with the 1Q19 results highlighting management’s increased focus on this business.

To recap, FY18 revenue from this segment jumped 35% to $86.4m, while net profit rose 26% to $14.3m. In HK, its second property project, a HK$80m-funded commercial office building, reaped HK$80m in capital return as well as an additional HK$80m in dividend, with further proceeds expected in FY19.

UAG has since reinvested these proceeds in four other projects. With one project slated for completion each year over the next four years, earnings visibility is enhanced.

The group’s expanding hotel management business in Japan adds another stream of recurring income. UAG will be managing 3,553 rooms by 2020 (Dec ’18: 2,667 rooms), which will benefit from the 2019 Rugby World Cup and Tokyo 2020 Olympics’ boost to tourism.

That said, UAG’s shipping business may hinge heavily on the outcome of the US-China trade war, with the group cautiously optimistic that the dry bulk market will pick up from current lows.

In view of the good results, the group is proposing a 1-for-2 bonus issue. Going forward, it also intends to pay out between 35-40% of the group’s core net profit for FY19 and FY20 as dividends on a semi-annual basis, starting 2Q19.