SAC Capital analyst Matthias Chan is maintaining his “buy” call on Uni-Asia Group CHJ with an unchanged target price of $1.02 as the group’s weaker FY2023 ended Dec 31, 2023, points towards a “normalising” of the shipping industry following its “unprecedented boom” from chronic port congestion globally in FY2022.
For the FY2023, Uni-Asia’s net profit came in 82% lower y-o-y at $5.1 million, while revenue dropped 33% y-o-y to $58 million.
The Baltic Handysize Index (BHSI), a leading indicator of economic activity of spot freight earnings for smaller dry bulk vessels, is currently trading close to US$800 ($1,078.16), close to the US$831 high in December 2023 and more than double the trough recorded in August last year.
Chan notes that macroeconomic conditions suggest that rates “will hover” at current levels, with a probable upside.
“Chinese seaborne dry bulk imports, especially coal, which makes up a third of global imports, remain robust. Rerouting of trade flows on longer voyages via the Cape of Good Hope has increased travel by more than a week. The long-standing slow steaming regulations to reduce harmful gas emissions also support rates,” writes the analyst.
Chan also understands Uni-Asia is active in managing its fleet to optimise returns, which he remarks as being similar to an investment manager.
He explains: “ It has successfully divested two old ships recently to meaningfully reduce the blended age of its portfolio of ships for optimal charter rates. In addition, the sales managed to be net book value neutral/positive and generate positive cash flows.”
Similarly, the group’s properties in Hong Kong and Japan are actively managed to optimise returns, such as in the case of several of its Hong Kong property assets currently being put on the market for strata-titled sales.
Beyond this, Chan writes that Uni-Asia is “not just” an alternative investment manager, noting that the group’s asset management arm, Uni-Asia Capital Japan (UNCJ), has increased its assets under management (AUM) by nearly seven times to JPY38.7 billion ($343.8 million).
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Besides holding hospitality, residential and healthcare assets, he adds UNCJ is also invested in sustainability assets, pointing to its managing of JPY1.3 billion in solar power assets since 3QFY2023 and its plans to build a public use facility comprising of a fitness centre, park, pool and bathhouse utilising residual heat from an existing waste treatment plant in Saitama Prefecture. The private finance initiative (PFI) will be UNCJ’s second.
“This is in line with the company’s commitment to good corporate citizenship and sustainable business practices, while contributing back to society,” adds Chan.
Moving forward, the analyst expects Uni-Asia’s profitability to improve from FY2023, anticipating a 60% y-o-y net profit increase in FY2024 and a further 35% y-o-y improvement in FY2025.
His revised target price implies a “fair” price-to-book value ratio (P/BV) of 0.4 times, and reflects a 60% discount to the P/BV of listed global asset managers.
As at 2.10 pm, shares in Uni-Asia are trading at 1.5 cents higher or 2.01% up at 76 cents.
