Trading below cash
- A-Sonic is involved in freight forwarding of cargo via sea and air. China, including Hong Kong SAR, accounted for 74% of FY21 revenue.
- 2H21 PATMI jumped 127% YoY to US$3.4mn on the back of an 85% surge in revenue. Freight forwarding rates have surged due to the lack of supply. Customers are more price inelastic as availability and securing slots more critical.
- The share price is trading at a 24% discount to net cash and 31% discount to book value. Dividend yield is 8.9%.
Company Background
A-Sonic Aerospace Ltd was listed on the Catalist in 2003 as a supplier of aircraft systems and aerospace components. Today, the company is mainly engaged in logistics. It operates in 29 cities in 15 countries, spanning four continents in Asia, North America, the Indian sub-continent and Europe. Around 75% of freight forwarding is wholesale and 25% retail (or end to end delivery). Margins are higher for retail due to additional service provided including warehousing, truck, custom clearance, insurance, etc.
Key Highlights
- Local player in air cargo terminal handling. A-Sonic takes care of all air cargo unloaded in Singapore, before delivering to their customers which includes multi-national corporations in various industries, eg semiconductors, healthcare. It also collects goods from all over Singapore, to be exported overseas. As Singapore is a trade-focused country, it offers the advantage of having a Free Trade Zone (FTZ), which offers direct connections to the Changi Airfreight Centre. A-Sonic plays a key role in ensuring that goods and products are transported on time.
- Asset-light model. In the coordination and shipment of goods from one place to another, A-Sonic offers IT solutions to integrate the end-to-end transportation process. This includes transporting the products from the manufacturer to the airport, before being shipped overseas, to reach the end-customer. The company does not have asset-heavy warehouses. Other than the leasehold office, non-current assets consist of mostly motor vehicles and right-of-use assets.
- Trading below cash. The balance sheet is very strong, with net cash of US$39.4mn. The share price is trading at a 24% discount to net cash and 31% discount to book value. Assuming all warrants are delisted, final number of shares listed would amount to 73,097,289 shares, and market capitalisation would increase to S$43.5mn, according to last closing price of S$0.595. This marks a 6% increase compared to the current market cap. Market cap would then be at a 19% discount to net cash, still very undervalued.
- Logistics business thriving in China and Hong Kong SAR. 74% of FY21 revenue was derived from China and Hong Kong SAR. The 12-month moving average value of China’s airfreight volume has been averaging growth of 15% in 2H21, and has already surged past pre-pandemic levels. In 2021, total air cargo loaded and discharged in Hong Kong increased 12.8% YoY to 4.98bn tonnes. Compared with the pre-pandemic level in 2019, it was also up 6%. China’s airfreight volume in 2021 surged 16.2% to 27.8 ton-km mn.
- Dividend yield of 8.9% in FY21. In FY21, the company declared a special dividend of 4.8 Scts/share, on top of a final dividend of 0.5 Scts/share. This implies a dividend yield of 8.9% and payout ratio of 34%. Since resuming profitability in FY18, dividend payout ratio and yield averaged 21% and 3.2% respectively. With strong cash generation and a robust balance sheet, consistency in dividend payments is expected.
REVENUE
A-Sonic Aerospace provides logistic solutions, including international and domestic multi-modal transportation, warehousing distribution, customs clearance and airport ground services.
Revenue comprises air and sea freight, transportation, custom clearance, documentation, cartage, handling and transfers and delivery of goods. These services are recognised at a point in time when control over the goods to be shipped is transferred to the customer and the timing of which is determined by the delivery and shipping contractual terms.
Almost 100% of the revenue is derived from the logistics segment, as A-Sonic has been gradually reducing their exposure to the aviation industry (i.e. the purchase and sale of aircraft systems and aerospace components) over the years (Figure 2).