Friday 14 December 2018

Uni-Asia Group 3Q2018 results briefing

Recently had the chance to attend the 3Q2018 results briefing for Uni-Asia Group

Will jot down my observations and thoughts here. This is an add-on to the previous post found here

Hong Kong Property Projects
- 2nd project will still have gains to be recognized in 2019 as there are 2 floors left not sold (2nd and 3rd floor retail related) and  some money is still with the consortium the group invested in.

- The current aim would be to invest in more projects but at a lesser amount than their 2nd project which they invested USD 10.4M.

-This way the income would be more recurrent as the projects are slated to complete in 2019,2020,2021 and etc if more projects are invested into

Japan Property Projects (Alero Series)
-IRR of each project is minimum 20% so far, the invested amount is roughly 3 to 5 million USD.

- Aiming for 6-8 projects a year. (This could imply perhaps around 3 million USD profits per year?)

- Would only focus on having projects in Tokyo as that is where population is increasing.

Japan Vista Hotel Management
- Operates on a 'management' basis hence they take into account the revenue and expenses of each hotel. Expenses do include paying to owners of the hotel a fixed or variable cost.

- The invested equity is roughly 3 million and hence the returns on equity is good although on a revenue basis the returns look mediocre (48.9 million revenue in 9 months of 2018 but 171'000 profits)

-5 Hotels opened this year and accounted for 1146'000 pre opening fees. There would be no pre-opening expenses in 4Q as the next hotel opens in end 2019.

- Current year of operations is not in a stable stage which the company hopes to achieve and aim for 2.5m USD profits in a year.

-However with IFRS 16 to be implemented in January 2019, this will result in higher upfront cost and affect P&L of hotel operations. This is due to incorporation of assets on the balance sheet along with lease liability which results in right of use depreciation +    Interest expense

Shipping Operations
- Group aims to focus on dry bulks in the long run and move away from containerships

-Currently has 4 containerships. 1 is on the balance sheet as cost-impairment basis. Book value estimated to be 14 million. Market value slightly lower at the moment but has not hit impairment levels. The current market for containers does not seem to bode well and further impairment losses would likely occur across 2018 and 2019.

-As for the dry bulks, the ships are on a mix of spot+ long term charter basis.

-As IMO 2020 approaches, ships will have to use low sulphur oil or install scrubbers. On handymax vessels which account for all but 2 of Uni-Asia's dry bulks(which are supramax), installer scrubbers are impossible due to size of ship being too small. Hence low sulphur oil has to be used and the cost is likely to be shared among various parties despite Uni-Asia being an owner.

-1 of the supramax ships will be installed with scrubbers which is requested by the current charterer of the ship. A scrubber is estimated to cost 2-3 million dollars. There is likely not much financial impacts arising from this as the increase in charter income would likely be offset by depreciation arising from the installation.

 Final words

The Positives
Currently 4Q 2018 dry bulk charter rates are still higher than 4Q 2017.
2nd HK Project and 3rd HK Project will still have gains recorded.
Hotels likely to see a 4th quarter of earnings not impacted by opening cost

The Negatives
Containerships might see impairment/ fair value losses
IFRS 16 to affect balance sheet ratios as well as P&L negatively.

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