SINGAPORE (Dec 20): Despite recording its highest nine-month profit in five years, Uni-Asia Group (UAG) has not inspired confidence among investors so far this year. But that could soon change.

The service provider of vessels and properties saw record-high earnings of US$6.7 million ($9.1 million) for 9MFY2019 ended September, some 35% higher than earnings of US$5.0 million a year ago.

This brought earnings per share (EPS) to 8.84 US cents for 9MFY2019, from 7.03 US cents in 9MFY2018.

The improved bottom-line was due to a 20% rise in 9MFY2019 revenue to US$102.9 million, led by a 25% increase in hotel income to US$60.4 million and a ten-fold increase in investment returns to US$8.1 million.

Yet, shares in Uni-Asia have fallen 37.4% year-to-date to close at 74.5 cents on Dec 19.

“With UAG recording the highest 9M19 earnings in five years, the stock now trades at an undemanding 5.5 times FY19E P/E and 0.35 times P/B, based on Bloomberg estimates,” Maybank Kim Eng analyst Eric Ong says in an unrated retail research report on Dec 18.

Ong notes that UAG intends to distribute at least 35% of its FY2019 net profit and at least 40% of its FY2020 net profits as dividends semi-annually. This translate to a “decent” yield of around 6%, he says.

The way Ong sees it, UAG’s Japan property investments yield good returns.

The group has invested in 41 small residential development projects in Tokyo under the ALERO brand, and also manages 15 hotels in Japan under the Vista Hotel brand.

The group will be opening one new hotel in December 2019 in Fukuoka and four more hotels in 2020. This brings its total room count to 3,401 in 20 properties,” Ong says.

“UAG’s hotels should enjoy a boost in occupancy due to the anticipated tourist spike from the upcoming 2020 Olympics,” he adds. “Notably, average occupancy rates for UAG operated hotels rose to 83.3% for 9M19 compared to 79.7% for 9M18, while average daily room rate was also 4.4% higher.”

Meanwhile, the analyst expresses uncertainty over the group’s investments in six commercial properties in Hong Kong.

“Escalating civil unrest in Hong Kong is dampening business sentiment, which could adversely affect its commercial assets in the short run,” Ong warns.

“In particular, the uncertainty surrounding the group’s commercial projects in Hong Kong could weigh on the group’s earnings in the near-term, as the bulk of investment gains from its earlier three Hong Kong projects have already been realised,” he adds.

At the same time, the group’s shipping division, which accounted for about 30% of FY2018 revenue, remains a drag on the group’s performance amidst persistent headwinds in the bulk carrier market.

Ong notes that the shipping industry is cyclical in nature, which may result in further impairments to its shipping assets in the event of a downturn. “Since 2010, the group’s shipping portfolio has been hit by the various industry headwinds forcing it to impair its vessels accordingly every year,” he says.

Ong opines that the steep discount on UAG’s trading price reflects market concerns over its shipping assets. “That said, management believes the current valuation of its fleet is fairly low, and any further impairments would be limited,” he adds.

As at 4.06pm, shares in Uni-Asia Group are trading 1 cent lower, or down 1.3%, at 73.5 cents.