Friday 1 March 2019

Uni-Asia Group (SGX: CHJ) 4Q/ FY 2018 result write up

Uni-Asia released its financial statements and results presentation slides today. 
On the plain view, results do seem to be dire with q3 and q4 in losses.......but are they truly bad?

It is highly recommended to read the slides alongside this write-up. 

Details off the surface
Dividend declared of SGD 7 cents (6.25 ordinary dividend and 0.75 special dividend for its 2nd HK property gains). 
This gives a yield of 5.83% based on the closing price of S$1.20 on 1 March 2019.
Q4 was loss-making, mainly due to impairment of ships and provisions. 
This has resulted in NAV of 2.84 usd, a decrease of 0.05 usd from previous year. 
Against closing price of S$1.20, the price to book ratio stands at 0.3125.

Key observations
-Provision for onerous contract of $3m made for its Uni-Asia shipping which does chartering of dry bulks. If that was not included, Profit before tax would come in at $935 000, a 29% drop quarter on quarter but a 297% improvement over Q4 2017. As such, if the provision is not included, profit would have increased by 32.7%

-Daily Dry Bulk Chartering rates improved to 10500 in Q4, however operating days did decrease. While my own estimates are not as accurate, the uptrend in estimates and daily rates is still seen. For Q1 of 2019, March will be a crucial month as daily rates have rebounded close to 10000 in March 2018.
1H 2018
Q3 2018
Q4 2018
Full Year 2018
Total Charter Income
15 078 000
7 515 000
7 684 000
30 277 000
Operating Days
Daily Rates
zzxbzz estimates from sources on the net

-Carrying value of containership in its fair value portfolio is 0, in Q4 the remaining  fair value($3.3m) has been valued down in Q4. Alongside is an impairment of $3m for its only containership held on balance sheet as ppe(which means that there would be depreciation and impairment losses only). 
As of the analyst briefing back in December, the book value of the ship was 14m while market value was 12-15m. While it was said that it was not at impairment levels then, it seems like it has reached impairment levels later that month. 
Following the impairment on its 1 containership held as ppe, the fair value loss on its 3 containerships held under the joint investment portfolio would not come as a surprise given that it has been recording fair value loss all along(refer to previous post)

-Despite borrowings falling from $216m to $180m(roughly 16%), finance cost has increased by 9%.

-Hotel of $22.7m has been classified as an asset for sale as it is marked for disposal in 2019. It will be interesting to see how this disposal pans out in 2019.

-Only $1.9m of fair value recognised for the 3rd HK project(K83 office building), alongside with gains still to flow in 2019 for the 2nd project, the property division ex japan should do well in 2019 since 95% of GFA of the 3rd HK project have been sold.

-Hotels operation in Japan have been proven to be profitable even at around 82% occupancy rate. Without opening expenses incurred, hotels generated $356 000, on a full year basis this would equate to roughly 1.4m or 3 cents per share. However with new accounting leases kicking in, it would likely see a worse off result in 2019 while cash flow is not affected.

Buy? Hold? Sell?
The considerations for sell would be 'anticipating a shipping downturn in 2019, leading to unprofitability and impairment loss of containership as well as dry bulks.' A slowdown in the japan economy is likely to affect business hotel usage and in turn result in a poorer performance.
Coupled with an increase in finance cost, this could be dire.

The considerations for hold would be 'increased dividends, ability to give a higher payout despite lower earnings coupled with lower borrowings and good cash flow (proceeds from 2nd hk project). This alongside huge fair value losses recorded already this year sums up the reasons to adopt a wait and see approach

The considerations for buy would be 'impairment loss would mean lower depreciation value and higher profits, with fair value at much lower.' Also with proceeds from the 2nd and 3rd project yet to fully be accounted for, it could provide a catalyst. Lastly, Tokyo Olympics in 2020 still remains relevant to its hotel play which has seen occupancy rates pick up to 82% a level that is profitable as of 2018 as new leases accounting are not yet in play.
Personally I am inclined to hold and perhaps add some if my circumstances and the price both align.
A thought in mind would be that continuous adding would likely be exposing more of the portfolio towards shipping which is a cyclical itself. On the other hand, the company does have other business segments to diversify income stream but would still leave itself to key risk of impairment and fair value losses from the shipping sector.

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