Founded in March 1997, Uni-Asia’s origins were in structured finance and distressed asset investments. The company was listed on the SGX on 17 August 2007. In 2010, the company expanded into ship and property investments. The core businesses of the company are the chartering of bulk carriers, investment properties in Hong Kong and the management and sale of residential projects in Japan. All 10 Uni-Asia bulk carriers are Handysize type vessels.
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In FY21, 70% of Uni-Asia revenue was charter income. We expect it to jump to 90% in FY22e. The 2nd largest revenue contributor is the sale of properties at 13%. Fee income and investment returns contribute 8% of revenue each.
(i) Charter income: Around 80% of Uni-Asia FY21 PBT comes from charter income. It is the rental of the company’s 10 bulk carriers (Figure 1) to shipping lines. The charters for a fixed period (called time charters) on a fixed daily rate. The smaller vessels are typically chartered out for six months and larger vessels for around a year. New vessels upon delivery tend to be chartered for five years to match the loan tenure. Around nine of the 10 vessels are due for renewal this year (Figure 1) and charter rates have been surging since 1Q21 (Figure 2). The key minor bulk cargo is grains, cement, steel, fertiliser, forest products and coal.
(ii) Sale of properties under development: Revenue is generated from the sale of Alero properties. Gains from the sale of Alero projects were previously recognised as investment gains.
(iii) Fee income: Fee income comes from multiple sources: i) Ship brokerage fee from securing charters for the vessels under management and other third-party customers and sale and purchase of ships.; ii) Project arrangement fees from the arrangement of finance, acquisition, and disposal of properties in Hong Kong and Japan and shipping joint ventures; iii) Asset management fee of Alero property projects in Japan.
(iv) Investment returns: The source of returns are from sales of vessels, fair value gains and gains from the sale of Hong Kong property investments. For FY22e, we expect the bulk of the gains to come from Alero property projects. Sales of Hong Kong properties are expected to be weaker due to the lockdowns still underway.
The largest operating cost is voyage expenses to operate the bulk carrier vessels. Around 1/3 of voyage expenses are crew and crew-related costs. Other costs include lubricant oil, consumables, cables, ropes, repairs and maintenance. Fuel cost is not borne by the vessel operator but by the shipping operator. After voyage expenses, the next largest cost is depreciation and amortisation of the vessels. The depreciation period of vessels is around 20 years. Fair valuation above book is implemented for assets in the joint venture.
Margins are volatile depending on the cycle of the three key businesses. Charter income margins (revenue less voyage expense) have swung from -18% to 57% over the past three years. Maritime services income is stable at around US$0.5mn PBT p.a. Maritime asset management margin is also volatile depending on investment and fair value gains.
Assets: Most of the assets in the balance sheet are shipping vessels (59%), which are the 10 bulk tankers. The next largest is cash (16%), investments (14%) and investment properties and properties under development (7%). Investments are predominantly Hong Kong commercial properties. Properties under development are the residential projects in Japan (Alero).
Liabilities: Of the US$98mn in total liabilities, US$84mn or 85% are bank borrowings. The bank borrowings are secured against the vessels and properties. The effective interest rate of the loans ranges from 0.6% to 2.45%, as per FY21. Net borrowings are currently USS$78mn, which is expected to decline to U$47mn with free cash flows (FCF) of US$34mn expected in FY22e.
FCF generated over the past three years has been strong. Cumulative FCF is US$67mn. Reasons for cash-flows above net profits is due to low CAPEX of only US$2mn p.a. versus depreciation of around US$10mn p.a. We believe there are no plans to purchase vessels in the next two years until there is clarity of the engine type that can meet IMO 2030 regulations. Working capital needs have also been minimal as charters are paid one month in advance.
Un-Asia is essentially in 4 core businesses – bulk ship owner, investment properties and management of shipping and property assets for 3rd party. Uni-Asia splits the business into
In shipping, dry bulk cargo is almost half of seaborne trade volume (Figure 8). There are around 12,700 dry bulk vessels globally. Dry bulk carriers transport unpackaged bulk cargo, major bulks (iron ore, coal, grains) and minor bulks (fertilizer, cement, sulphur, forest products). Major bulks are around 60% of cargo shipped by tonne-miles. The end destination of many key routes is to China. The key cargo includes the transport of iron ore and grains from Brazil to China and from Australia to China (Figure 8). Dy bulk ship can be separated by DWT capacity (Appendix 1). Uni-Asia 10 vessels are all Handysize, or less than 40k DWT. Above Handysize is the Supramax, Handymax and Ultramax category. We designate all three as Supramax. The 2nd largest category is the Panamax. It refers to the maximum size of a vessel than can transit the Panama Canal. The largest sized bulk carriers are the Capesize. Because they are too large to transit the Panama Canal and need to travel around Cape Horn, South Africa.
The Baltic Dry Index (BDI) enjoyed two major upcycles. The first was in 2004 after China entered the WTO. Then came the super cycle in 2008 following the surge in infrastructure and property projects in China. From 2010, the BDI has been languishing below 2000 to (monthly) lows of 487 in January 2020. Excess supply and slowdown in China were major drivers of the weakness. A significant pick-up in the index occurred in June 2020 due to major supply chain bottlenecks, especially at the ports. The BDI almost quadrupled over five months from 487 in January to 1800 in June 2020.