SINGAPORE (June 21): NRA Capital is maintaining its “overweight” call on shipowner and charterer Uni-Asia Group with a fair value of $1.85 on improvement in dry bulk shipping.
“We see heightened global infrastructure spending under China’s One Belt One Road (OBOR) policy as a potential catalyst that will support the ongoing recovery in the dry bulk sector,” says analyst Liu Jinshu in a Wednesday report.
With some 900 projects worth US$890 billion under way or planned, dry bulk shippers will benefit, thanks to demand for infrastructure-related resources such as iron ore.
In addition, there are fewer newbuilds to constrain capacity growth. As of June 9, the number of bulk carriers on order has halved to 257 vessels from 490 vessels a year ago.
However, the Baltic Dry Index may take time to return to the end March high of 1,282, having retreated by 34% to 848 currently. The current weakness is due to slower demand as iron ore inventory in China have climbed to levels exceeding that of 2010.
Nevertheless, Liu expects rates to rise gradually in 2H17. Overall, the longer-term drivers remain intact and the Baltic Dry Index is still 46.5% higher in 2017 year-to-date compared to the whole of 2016.
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Liu also expects Uni-Asia to remain profitable in 2Q17 as the company was previously hit by losses from its ship investments.
In 1Q17, Uni-Asia swung to a attributable earnings of US$2.1 million from a net loss of US$0.73 million in 1Q16. This was due to a net profit of US$2.4 million from the company’s shipping busines which had incurred a loss of US$0.3 million a year ago.
Meanwhile, the property and hotels business reported a net profit of US$0.9 million, before unallocated overheads.
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“We expect Uni-Asia to remain profitable in 2Q17,” says Liu.
Potential catalysts include any further corporate actions after Uni-Asia’s recent move to incorporate itself in Singapore rather than in the Cayman Islands.
Shares of Uni-Asia are trading 10 cents higher at $1.45.
