SAC Capital analysts Nicole Lim and Matthias Chan have initiated a “buy” call on Uni-Asia Group CHJ with a target price of $1.20, representing an upside of around 20% from its current share price of $1.01.
The target price is based on Uni-Asia’s estimated FY2023 P/E of 3.3x, and a 20% discount to the industry average, based on the group’s smaller market capitalisation and operations.
To Lim and Chan, the group is well-placed to benefit from the growing shipping market, with “positive dynamics” between supply and demand on the back of the continued need for dry bulk and squeeze in global fleet growth.
“While charter rates have eased in 1H2023, a recovery is expected in 2H2023 with China’s reopening posing as a tailwind. Uni-Asia’s chartering business should fare well defensively before rebounding in FY2024,” write Lim and Chan in their April 18 report.
The group’s property projects in Japan are also set to gain from the stable demand in property in the country. Japan has one of the highest inheritance taxes globally with the highest bracket at 55%. As such, many individuals buy properties to lower their taxable amount. Compared to cash, which is taxed 100% at face value, properties in Japan usually have a lower tax-assessed value compared to their fair value.
“[In Japan], properties developed for sale are completed within two years and fully sold within a year, with land purchased cheaply. This should continue into the near term as demand remains buoyant and Uni-Asia continues to search for opportunities for redevelopment,” note Lim and Chan.
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Finally, the analysts like Uni-Asia’s healthy balance sheet, with 80% of its total assets backed by physical assets such as property, plant and equipment (PPE), investment properties and cash.
“Most of its PPE are from its vessels held at cost. Based on Clarkson’s March report, a 26k deadweight tonnage (DWT) and 32k DWT ship has a market value of US$12 million ($16.0 million) and US$26 million respectively,” they write, adding that the market value of the total ships within Uni-Asia’s assets stood at US$190 million (or US$2.42 per share) minimally.
Including the group’s investment properties and cash as at end-December 2022, its net asset value (NAV) of US$1.92 per share would imply a discount of over 50% to its real assets held.
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In the same period, the group’s operating cash flow, at US$37.4 million, is sufficient to repay its borrowings and pay out dividends, the analysts add.
Furthermore, its low gearing of 17.0% indicates that the group has a headroom of around US$50 million to expand its operations. The sum, which is around the value of three similar ships in its portfolio, means the group could potentially up its fleet size by 33%.
Uni-Asia, which have made steady dividend payouts since the FY2012, even during its down years, is another positive in Lim and Chan’s book. During the FY2022, the group recorded its highest-ever payout of 14.5 cents, indicating a yield of 14.5% to its share price.
Amid the positives, a subdued reopening of China’s economy, a slowdown of global growth, as well as volatility in foreign exchange (forex) and interest rates are some risks to the re-rating of Uni-Asia Group’s shares.
As at 2.38pm, shares in Uni-Asia Group are trading flat at $1.01.
