SAC Capital analyst Matthias Chan has downgraded Uni-Asia to “hold” with a new target price of 80 cents, compared to $1.02.
His report comes after Uni-Asia reported a net loss of US$11.8 million ($15.4 million) for 1HFY2024 ended June 30 compared to earnings of US$4.2 million in the same period the year before.
According to Chan, Hong Kong is a “key uncertainty” as its poor half-year showing is primarily attributed to a US$12.8 million fair value loss for its Hong Kong property project investments amid a declining market.
Hong Kong is in a “bad patch” and “appears to be so for the foreseeable future”, the analyst says. Without the fair value loss, Uni-Asia would have reported a net profit of about US$1 million in 1HFY2024. This suggests lower profitability from the company’s other main business segments, ship owning and chartering, says Chan.
Its Hong Kong portfolio aside, Chan notes that Uni-Asia has been consistently managing its shipping fleet to optimize returns. In November 2023, the company sold its oldest 29K deadweight tonnage (DWT) ship and in January 2024 it sold its second-oldest 29K DWT ship. This led to a 22% y-o-y decrease in the group’s 1HFY2023 charter income. However, this appears to be a strategic move as smaller and older ships draw in lower average daily charter rates, pulling down the group’s average rates.
Going forward, the group is actively looking to restructure its fleet with newer and larger ships. “The group has been fixing shorter charter periods for its 29K DWT ships while seeking longer charter for its more lucrative 37K DWT ships. Out of its current portfolio of eight ships, three are 29k DWT which are obvious targets for disposal and happen to be the older ones,” Chan notes.
See also: Oiltek should explore upgrade to Mainboard, says CGSI
While the group has remained “prudent” on new purchases so far with newbuild and secondhand bulk carrier prices “on a tear”, Chan adds that the group has a strong balance sheet, with its net debt to equity at a “very low” 0.1 times.
Beyond this, the analyst sees Uni-Asia’s business model remaining “intact”. Uni-Asia has set itself as an alternative investment manager and “despite the flux in the global shipping industry and the difficulties of the HK property market, it continues to actively manage its assets”, the analyst says.
However, Chan recognises that Uni-Asia’s share price performance will be “restrained by uncertainties”. Following his downgrade, Chan has amended his FY2024 net profit forecast to -US$12.4 million, implying a breakeven situation in 2HFY2024. He has also reduced his FY2025 net profit forecast to US$1.4 million.
See also: CGSI ups Food Empire’s TP to $1.53 with Vietnam ‘likely to shine’ in FY2024 results
“We expect [Uni-Asia’s] share price to perform better when its shipping transformation gains traction and [the] Hong Kong property market bottoms out,” says the analyst.
As at 9.39am, units in Uni-Asia are trading at $0.78.
