SINGAPORE (Apr 15): On April 4, Uni-Asia Group raised $5.85 million through the issue of 5.42 million shares at $1.08 apiece. The placees are entitled to a dividend per share of 6.25 cents and a special dividend of 0.75 cent announced on March 1 for FY2018. The dividend yield for the placement shares is 6.48%. The placement shares were distributed through Maybank-Kim Eng to about 40 investors. The subscribers included institutional investors such as Judah Value Activist Fund, Hibiki Path Value Fund and Golden Hill Investments, as well as various other individuals, family offices and corporate investors.
At its last traded price of $1.16, the stock’s dividend yield is 6.03% including the special dividend.
What was the rationale for announcing a special dividend and raising equity?
According to Uni-Asia Group chairman and CEO Michio Tanamoto, the multi- asset group has committed to a dividend of at least 6.25 cents a year. “Our payout ratio is in excess of 30% of net profit. We will at least maintain 6.25 cents a year and, if possible, try to increase it,” he says during a recent interview.
On April 8, Uni-Asia Group announced that it intended to distribute dividends of between 35% and 40% of the group’s consolidated net profit after tax (excluding non-recurring, one-off and exceptional items) for FY2019 and FY2020, to be paid half-yearly. “The [payout ratio] has been formulated taking into account the company’s historical performance and dividends paid, and is intended to give clearer guidance to shareholders of the potential dividend payout, which will be pegged to the financial performance of the group for the relevant financial year,” the announcement says.
See also: Hong Kong investor and EPF pare stake in Interra Resources, Riverstone respectively
Uni-Asia Group develops and sells properties in Japan and Hong Kong, manages a modest portfolio of hotels and owns a fleet of bulk carriers. It wrote down the value of its four containerships to zero in 2018.
Placement proceeds to be used for property investment
The recent placement has raised liquidity and brought in new investors, and the placement monies are likely to be used for property development. Uni-Asia Group needs the funds at hand when it bids for land in Japan. One of its core businesses is the development of boutique rental properties that are too small for corporates and institutions, but too big for individual owners, which makes them ideal for small companies such as Uni-Asia Group.
See also: DBS and Sea: Two ends of a barbell?
If Uni-Asia wins a bid, it needs to have the downpayment — usually 50% of the project value — ready.
“The turnaround time for property investment is very short. For example, when we identify land in Japan, we need to put up cash in one to two weeks after winning the bid,” Tanamoto says. “This placement is to prepare a war chest so when opportunities arise, we are ready to take up the offer.”
The company could make property investments in Hong Kong, through partnerships or joint ventures, or small residential sites in Japan. “We have not specifically identified any one project,” Tanamoto says. “We want to grow the pie in the property sector, not just for new investors but for existing ones as well. The pie is growing with current market conditions and there will be a multiplier effect from new funds, which could grow a bigger pie.”
Uni-Asia Group usually develops Hong Kong commercial buildings through partnerships and joint ventures with third parties and sells them on a strata-title basis. “We are not holding these for recurring income,” Tanamoto says.
In Japan, the company develops property under the brand name ALERO, which means canopy in Spanish. The boutique developments are built at a cost of around $6 million each. Tanamoto says the company usually targets an internal rate of return of 20%, which is quite achievable in an investment horizon of 18 to 24 months. Each year, Uni-Asia Group develops seven to 10 projects and sells seven to 10 more.
For FY2018, proceeds from the sale of its ALERO branded properties amounted to US$11.6 million ($15.7 billion) while sale of investments, including US$14.7 million from its Hong Kong property investments, helped to propel free cash flow for the year to US$52.4 million. However, interest cover was low in 2018, at just 3.45 times, and net debt to equity was a relatively high 1.03 times as at Dec 31, 2018.
“We are always trying to balance capital outlay with recurring income and investment returns. Shipping is capital-intensive, property gets recycled and the hotel sector is ROE [return on equity] generating,” Tanamoto explains. “For gearing, 1.4 times is the optimal level. Most of our borrowings are asset-backed. For example, for ships, we borrow up to 70% of the purchase price and those are tied to ship investment. For Japanese properties, we borrow up to 50% during the investment phase.”
For more stories about where money flows, click here for Capital Section
Impairment for containerships
Uni-Asia Group announced a fair valuation loss of US$9.2 million in FY2018 for its containerships and a product tanker, and a further US$3.2 million impairment on a wholly owned containership investment. The writedown was blamed on the ongoing US-China trade war and tonnage oversupply. “Following these fair valuation losses taken for containership investments, the containership investments which are subjected to fair valuation had been written down to zero,” UniAsia Group says in a statement.
In addition, Uni-Asia Group operates 18 bulk carriers, of which eight are wholly owned. In total, the company operates a fleet of 22 ships, of which 11, including containerships, are wholly owned. “Our strategy for our shipping portfolio is to dispose of older bulk carriers and replace them with new ships in the Handy and Handymax sector,” Tanamoto says. The company may also sell the older bulk carriers if they cost too much to upkeep.
Although the Baltic Dry Index, which reflects charter rates of bulk carriers, is at the 700+ level — way below 1,800 about a year ago — Tanamoto believes rates will recover once the trade war is resolved. Nevertheless, the bulk carriers have fixed five- to seven-year charter rates. At current levels, Uni-Asia Group’s bulk carriers are breaking even, he says.
Complicated history
Uni-Asia Group describes itself as an integrated service provider of alternative investments. It owns and operates these assets, which include property and hotels in Japan, commercial properties in Hong Kong, a fleet of 22 bulk carriers and container ships.
In 2007, Uni-Asia Holdings, then a Caymans-incorporated company, listed on the Singapore Exchange. In 2011, it raised $31.3 million through an issue of 156.6 million new shares at 20 cents apiece. In 2015, it underwent a 10-for-1 share consolidation, shrinking the number of shares to 46.98 million. Its paid-up capital remained at US$75.16 million.
In 2017, Uni-Asia Holdings went through a restructuring. The current listed entity, Uni-Asia Group, completed a share swap with the shareholders of Uni-Asia Holdings on June 2, 2017, following which UniAsia Group was listed on SGX and Uni-Asia Holdings was delisted. Uni-Asia Group is incorporated in Singapore.
Although the group’s structure is somewhat convoluted, the best way to think of Uni-Asia Group is as a developer and manager of properties, a manager of hotels receiving management fees, and the owner and manager of its fleet of vessels.
While its biggest revenue contributor is its shipping segment at US$38.3 million, property and hotels posted the largest profit before tax at US$14.66 million in FY2018. Net profit for FY2018 fell 85% to US$1.11 million owing to the various write-downs, which are non-recurring. Net profit would have been US$10 million more if not for the shipping impairments.
The company operates 16 hotels under the Vista brand name and is targeting four more hotels. Property is likely to be its main focus going forward as it is recycled quite quickly. “If we have more capital for our ALERO project, we will generate more capital returns,” Tanamoto says. That is probably why the management is confident of maintaining a dividend of at least 6.25 cents for the next few years.
