Uni-Asia is maintaining its ‘outperform’ call on Uni-Asia at a higher target price of $1.56. This is up 14 cents from its previous $1.42 cent call and is expected to give the counter a 47% upside from it $1.09 price, analyst Joel Ng writes in an Aug 17 note.
“Valuations are attractive amid the stronger-than expected bulk carrier upcycle. Our target price implies a 0.7x FY2021 P/B (price-to-book), which is still a conservative 30% discount to international peers who are trading above 1.0x P/B,” he explains.
Ng’s move follows the – in his words – higher and stronger profits of US$7.0 million ($9.5 million) in 1HFY21, a reversal from the $3.9 million loss seen in the year before.
See: Uni-Asia back in the black with US$7 mil earnings for 1HFY2021
This follows a 46% y-o-y increase in its charter income to $20 million, thanks to a rise in its average daily charter rate to US$10,900 in 1HFY21, compared to around US$7,000 in the year before.
With this, the group’s shipping reversed into the black with profits of US$9 million in 1HFY21.
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Meanwhile, Ng believes that Uni-Asia has the right assets at the right time. For one, the broad-based increase in commodity demand as well as the tight supply of vessels have pushed Baltic Freight rates to the highest they have been in over 10 years.
Furthermore, the market for handysize – which the group specialises in – is even more favourable as rates have risen to the highest they have been since 2008.
Charter rates are presently over US$25,000 per day.
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Ng is expected charter rates “to remain resilient at these levels, or even increase, amid historically low order book, rising scrap rates and further cuts in operating speeds”.
Going forward, six of the group’s wholly owned dry bulks are slated for renewal in 2H2021, while three will renew in 1H2022 and one in 2H2022.
The group is now approaching its third quarter, which is traditionally a peak season due to the commencement of the northern hemisphere grain season.
Ng is also expecting stronger demand for steel and other construction materials following the passing of the US Senate’s US$1 trillion infrastructure plan. This he adds, will drive bulk shipping demand.
The dry bulk shipping market had gone through a challenging decade due to excess supply prior to the global financial crisis.
The way Ng sees it, the “current decade is setting up for a much tighter market due to discipline among ship owners, led partly by the reluctance to build new vessels that may become obsolete in 2030 when ships are required to cut carbon emissions by 40%”.
Aside from ship chartering, Uni-Asia’s property business in Japan is growing with assets under management increasing from JPY30 billion ($0.37 billion) in end 2020 to JPY 32billion at the end of 1HFY21.
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Ng reckons that the group’s five commercial properties in Hong Kong will likely only contribute from 2H2022, given the relatively high office vacancy rates and weak leasing demand there.
He adds that there will be “more colour on prices and demand” once the group starts marketing its fourth and fifth properties before the year ends.
As at 4.52pm, shares in Uni-Asia Group were down a cent or 0.92% at $1.08.
Cover image: Albert Chua/The Edge Singapore
