When Kenji Fukuyado took on the CEO role at Uni-Asia Group in April 2020, he knew he was in for an uphill task. The alternative investment company — which offers structured financing, ship charter arrangement, shipping and maritime asset management and real estate investments — was slipping into losses that would hit US$7.5 million ($10.2 million) for its FY2020 ended December 2020. This was a sharp swing from earnings of US$6.6 million in the preceding FY2019.
At the start of 2020, trade volumes had plunged significantly because of the movement restrictions imposed by governments to curb the pandemic. However, thanks to a strong pickup in the shipping market this year, coupled with property investments steadily bearing fruit one after another, Fukuyado can look forward to helming a V-shaped earnings recovery in Uni-Asia’s current FY2021.
In fact, Fukuyado has given a “strong commitment” to turn the company around. “I put pressure on myself to make that strong message because we would have losses for two consecutive years if we were not able to move into recovery,” he tells The Edge Singapore in an interview. Such a situation, he adds, would put a strain on the group’s relationship with investors and the banks.
Fukuyado’s game plan is simple but not easy to implement: look out for ways to strengthen Uni-Asia’s balance sheet such that it can achieve long-term growth. One way he addressed this was by evaluating each investment project — both ongoing ones and new opportunities — to explore ways they could be improved upon. Through this, he hoped to find new income sources to drive growth, and also make up for what the company would miss out on from the divestment of its tourism and hospitality arm in FY2020.
Favourable environment
The sharp surge in shipping rates to a 13-year high gave a strong boost to Fukuyado’s turnaround plans. While trade volume is recovering, supply chain constrictions remain in place. Ports are congested, meaning the queue of vessels waiting for their turn to berth has stretched for days instead of just hours.
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From US$6,548 in 2QFY2020, the average daily charter rate has surged to US$14,321 in 3QFY2021. “I hope this good shipping market will last forever,” chuckles Fukuyado, although he acknowledges that this will not be the case since shipping is a cyclical business.
For now, the big picture suggests that the rates are likely to stay buoyant. The US government, for example, is spending US$1 trillion in new infrastructure. Uni-Asia’s 18 bulk carriers under management — along with the rest of the world’s merchant fleet — can expect plenty of gainful employment from shuffling iron, coal, grains and other commodities from one port to another, suggests KGI analyst Joel Ng in his Nov 22 note.
New vessels are being built to meet the demand, but the imbalance cannot be addressed immediately. Fukuyado notes that the new building orderbook for bulk carriers stands at a historical low of less than 7% of total fleet, while the supply of bulk carriers in 2021 and 2022 is also pretty low. “The supply pressure for bulk carriers is less, while demand is strong,” he says.
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However, Fukuyado is careful not to commit to acquiring more vessels to take advantage of the higher rates. “We want to enjoy this good market. For shipping investments, price is very important — so ideally, when the market is really bad, that is a good time to buy; but now is not a good time,” he explains.
Fukuyado’s decision hinges on two factors. The first is anticipation that the prices of bulk carriers will rise as operators rush to place orders, only for the vessels to be launched in two years’ time. By then, he says, the market dynamics would likely have changed.
Next, the shipping industry is compelled to do its part on sustainability. However, the details of the greenhouse gas emissions reduction targets that the industry is steering itself towards have yet to be fully determined. “That’s why, although the market is going up, so far we don’t see massive new orders,” notes Fukuyado.
Meanwhile, along with better charter rates and demand for ship-chartering services, the market value of the vessels has increased by around 50% since the start of the year. This in turn gives Uni-Asia a valid reason to book re-valuation gains on the vessels it owns.
Competitive costs
Aside from its shipping segment, Uni-Asia has been making steady headway in its property investments too. It typically takes minority stakes in the various projects with a specific focus on the different countries it is in.
For example, Uni-Asia has co-invested in a series of office and industrial development projects in Hong Kong. It usually turns around such projects in three to four years. “We will probably sell before the buildings are nearly ready for sale. We don’t want to just hold the property without taking any actions, even if the market is softening. This is because our cost is pretty competitive,” says Fukuyado.
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So far, Uni-Asia has completed and sold three developments in Hong Kong. The fourth and fifth projects were completed recently and are on sale, while another three projects are at various other stages.
The fourth project, an office building along Tai Chung Road, was completed in August. Uni-Asia’s investment of US$3.4 million gives it a stake of 2.5%. The fifth project is an industrial building along Chai Wan Kok Street. Uni-Asia holds a 7.5% stake costing US$4.3 million in this facility.
Meanwhile, its sixth project is an industrial building at Tai Nam West Street, where Uni-Asia holds a 3.83% stake with an investment of US$4.5 million. The seventh one is an office building at Chai Wan Kok Street. The company holds 8.27% in this development, with an investment of US$6.85 million. Uni-Asia’s eighth project consists of two phases of an industrial office building complex that will see it holding 3%, after putting in US$4.23 million. So far, foundation works are underway.
Even as Uni-Asia looks to launch its new projects, Fukuyado is bracing for a bleak property market should the pandemic rage on. “The property market in Hong Kong is a bit slow, because of the travel restrictions,” he says. However, he notes that the retail property market there has seemingly picked up as investors deem the price to be cheap. Fukuyado’s hope is for this optimism to result in better demand for other property types, especially if border controls between Hong Kong and China ease.
Meanwhile, Uni-Asia also has investments in small residential properties throughout its home market of Japan under its Alero series. As these are typically four- or five storey buildings with between 10 and 30 units, the development turnaround time is pretty quick, lasting around a year from the time the land is bought to when it is sold. Fukuyado expects to keep a steady pace of such activities, since the residential property market in Japan is “still good”. So far, Uni-Asia has sold over 50 such projects; it has 12 ongoing projects as at September, including two that are held for long-term leasing.
‘Inexpensive’ shares
For its 1HFY2021 ended June 30, Uni-Asia reported earnings of US$7.2 million, versus losses of US$3.8 million in the year before. This came as revenue rose by 47% y-o-y to US$31.7 million.
The company has thus declared an interim dividend of two cents per share. In contrast, Uni-Asia paid just one cent for the whole of FY2020. It had paid a total of 4.2 cents per share for FY2019, but that has to be seen in the context of Uni-Asia’s one-for-two bonus share issue in June 2019, where shareholders received one additional share for every two shares they held.
In Uni-Asia’s 3QFY2021 business update on Nov 12, it reported an operating cash flow of US$11 million, up from US$8.1 million in 1H2021. Assuming stable depreciation, finance charges, and the absence of any one-offs in working capital, UOB Kay Hian analyst Clement Ho estimates that its earnings for the first nine months of 2021 will fall between US$10 million and US$12 million, almost on a par with the company’s all-time high of US$12.1 million achieved in FY2007 — the year it was listed. Ho, who describes Uni-Asia’s shares as “inexpensive”, estimates that the company is trading at forward earnings of 4.5 times for FY2021 and 3.9 times for FY2022. The company’s net asset value per share, as at June 30, was US$1.56, which is at a 36.6% discount to the Dec 8 closing price of $1.35. Year to date, Uni-Asia’s shares were up 128.81%.
“Historically, the low valuation peg appended to Uni-Asia was due to a lack of liquidity, which we believe will improve given the strong earnings profile,” says Ho, who has a “buy” call and $2.34 price target on the stock.
Along with the better earnings, Ho is expecting Uni-Asia to pay higher dividends of between five and six cents per share for both FY2021 and FY2022, which implies yields of 3.6% and 4.3%.
KGI’s Ng has similarly posted an “outperform” rating and target price of $1.56. He notes how Uni-Asia has been paring its debt, which is a likely precursor to a higher final dividend to be declared when the company reports its FY2021 earnings in February 2022.
Cover image of Kenji Fukuyado, CEO of Uni-Asia Group: Uni-Asia
