Citing big discount to book, SAC Capital maintains 'buy' on Uni-Asia

As at June 30, Uni-Asia's NAV was US$1.89, implying a price to book ratio of just 0.36x, versus a sector average of 0.92x

Lower shipping charter rates, coupled with a weak property of Hong Kong are causing an overhang to persist over Uni-Asia Group.

Nonetheless, with the share price of the investment firm hovering at a wide discount to its peers, and an even wider gap to its book value, SAC Capital analysts Nicole Lim and Matthias Chan are upbeat that there's room for the share price to head up.

As at June 30, Uni-Asia's NAV was US$1.89, implying a price to book ratio of just 0.36x, versus a sector average of 0.92x. The 60% discount, in the words of Lim and Chan in their Aug 30 note, is "too wide" considering the "high quality of its real assets recorded at values significantly below those of the market."

According to the analysts, charter rates are likely to remain weak in the current 2HFY2023 ending December.

This follows a 74% y-o-y drop in 1HFY2023 earnings to US$4.3 million, as average charter rates in the second quarter of 2023 dropped 13% over 1Q to US$10,800 per day.

Uni-Asia's management is guiding for a blended spot rate of US$10,000 to US$15,000 for 2HFY2023 before recovery in the coming FY2024, led by the recovery in external demand.

As such, Lim and Chan have cut their FY2023 and FY2024 earnings estimates to US$8.3 million and US$11.3 million.

However, the analysts point out that Uni-Asia has the flexiblity to sell some of its ships, and use the proceeds to pare debt.

The price in May for a 38-40kDWT new build price stands at US$30 million, almost on par with a 5-year-old 38kDWT price of U$26 million, signaling price resilience despite falling charter rates.

"Purchase of second-hand vessels still remain an attractive option," write Lim and Chan.

Uni-Asia has taken a series of minority stakes in small commercial developments in Hong Kong as well. However, the city suffering spillover from the broader slowdown in China.

"Conservatively, the company does not expect contributions from Hong Kong property projects in 2H23 and 1H24," the analysts say.

On the other hand, Uni-Asia sees further expansion in Japan.

After its first successful co-purchase of land outside Tokyo, it is considering similar acquisitions with other investors in Furano and Niseko, the analysts note.

"We maintain a buy recommendation at revised target price of $1.14, down from $1.20 previously," note Lim and Chan, who have inputted a valuation of 0.45x book, using a smaller discount of 50%.

Uni-Asia shares closed at 91 cents on Aug 31, up 15.19% year to date.

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