FY08 net loss of US$3.7m was mainly due to net loss from Capital Advisers and lower investment returns due to fair valuation losses on investments in vessels and properties in Japan. Outlook ahead remains weak but recurrent incoming is increasing. Downgrade to HOLD, TP: S$0.22.

Fair valuation losses. FY08 net loss of US$3.7m was below our expectations. The variance was due to net loss from Capital Advisers (CA) and lower investment returns due to US$9.5m fair valuation losses on investments in vessels and properties in Japan. Excluding this segment, income from hotel and fee income units were within our expectations.

Depleting cash levels. Cashflow from operations deteriorated in FY08, attributable to a low level of fee income and the consolidation of CA during the year. Uni-Asia also committed to a high level of investment. As a result, cash balance depleted to US$28.8m from US$50.8m in FY07.

Weak outlook but recurring income increasing. The outlook for the shipping sector has deteriorated. Risks include:- a) possibility of customers looking to renegotiate charter rates; (b) availability of credit lines; (c) fast declining asset values and d) counterparty risks. The property sector is also plagued by weak demand in Japan. However, Uni-Asia has a highly stable fee-income business model, with more than half of its estimated FY09 income recurring for the duration of the charter contracts for vessels and from the management of hotels and residential apartments.

Downgrade to HOLD. We have revised earnings forecasts for FY09 and FY2010 down drastically to account for weaker outlook and higher risks involved. Target price of S$0.22 is based on sum-of-parts valuation. Downgrade to HOLD.