Excerpts from KGI Securities report
Analyst: Joel Ng
Site visit to UAG’s Tokyo hotels and residential properties
|Valuation & Action:
UAG’s valuations are trading at distressed levels, which we believe is not justified given its diversified businesses and potential growth from its hotel operations.
Even if we were to strip out its highly cyclical shipping business, we estimate UAG’s minimum fair value to be around S$0.82.
Our TP implies a conservative 0.6x FY20F BVPS and 8.5x FY20F EPS, supported by an attractive 6% dividend yield.
Risks: Shipping slowdown as the trade-war escalates. Decline in Hong Kong property market due to the ongoing protests.
Our 3-minute video of the trip:
We used an SOTP valuation and an exchange rate of 1.30 SGD/USD to derive our fair value of S$1.24. Our fair value is an implied 0.6x 2020F BVPS and 8.5x 2020F EPS.
In summary, Uni-Asia’s shipping, property and hotel business contribute 34%, 39% and 28%, respectively, to our total SOTP-derived fair value. Uni-Asia’s shipping segment consists of 24 ships: 9 small handysize dry bulk carriers, 1 wholly-owned dry bulk carrier, 1 wholly-owned containership, and 13 ships under jointinvestments.
We applied a 70% discount to the net book value of its vessels. In our view, this valuation is conservative and is based on book values that have largely been written down since FY16.
To date, it has written down more than US$20mn on its shipping assets. 2H18 was a volatile period for the bulk freight market due to sentimental shifts amid the US-China trade war. In the worst-case scenario where we ascribe a zero net value on all its shipping assets, we still derive a fair value of S$0.82 for UAG.
"70% discount to book is attractive and offers limited downside risk. We think downside risk for Uni-Asia is limited given that its P/B valuation is near trough levels. The stock is currently trading at close to 1SD below its 10-year P/B average."
Its properties segment is divided into investments in Hong Kong commercial buildings and small residential properties in Tokyo.
It currently has two Hong Kong commercial projects under construction to be completed progressively over the next two years. It has invested in another two HK commercial projects recently.
We applied a 30% to the net book value of its properties, which we believe conservatively values the potential upside when the properties are completed.
Hong Kong and Japanese properties have seen continual cap rate compression since 2016.
|Finally, we valued Uni-Asia’s hotel management business at 15x 2019F EPS, which is more than a 50% discount to the hotel management peers’ average 25x 2019F EPS.
The group aims to have 3,401 rooms under management by 2020, which we expect to help contribute at least US$1.5mm to US$2.5mn in recurring core net profit by then (based on pre-IFRS 16 accounting standards).
We find this segment the most promising among Uni-Asia’s business segments in terms of contribution to the group’s bottom line beyond 2021.
Full report here.