UNI-ASIA GROUP LIMITED (SGX:CHJ)
Uni-Asia Group - Under-The-Radar Drybulk Operator Set To Benefit From High Freight Rates
- Uni-Asia Group (SGX:CHJ) is a prime beneficiary and laggard of the more than 210% year-to-date spike in dry bulk freight rates. We believe freight rates will stay elevated at least until end-22 given the:
- supply squeeze as vessels are stuck longer in ports,
- strong demand for various commodities, and
- dearth of drybulk newbuilds as buyers stay on the sidelines in anticipation of new ESG standards on vessel emissions.
- We initiate coverage on Uni-Asia with a BUY. Target price: S$2.34.
Drybulk operator with solid dividend track record.
- Listed on the Singapore Exchange since Aug 07, Uni-Asia Group (SGX:CHJ) operates two key segments: shipping and property.
- Under shipping, Uni-Asia has a combined fleet of 18 handy-sized drybulkers, with 10 wholly-owned and eight jointly-owned. The fleet is typically hired out on a time charter basis, with Uni-Asia undertaking most of the voyage expenses, including bunker, port, fuel and crew costs.
- Uni-Asia has a solid dividend track record since 2017 and continued paying dividends despite a loss-making 2020.
Freight rates to remain elevated till at least end-22.
- The recent spike in drybulk freight rates was primarily caused by a supply squeeze (as vessels are stuck longer in ports) and strong demand for various commodities. Furthermore, a meaningful increase on the supply end is absent, based on the global outstanding orderbook for smaller-sized vessels (up to 40,000 dwt). This is because buyers are staying on the sidelines of new orders in anticipation of new ESG standards on vessel emissions.
- Also, any new vessel orders placed now will still require at least 24 months of construction. We believe the perfect storm has begun for a demand surge in the dry bulk industry, where shipowners will likely benefit with the anticipation that freight rates will stay elevated into end-22.
Renewal of vessels’ rate to boost earnings.
- Of the 10 wholly-owned dry bulk carriers, six are up for renewal in 2H21 and three in 1H22. Based on current freight rates, we estimate that 2H21 and 2021 revenue would rise 38% and 42% respectively on a y-o-y basis, translating to a significant EPS turnaround in 2H21 at US$0.0457 (2H20: -US$0.0497) and 2021 at US$0.217 (2020: -US$0.098).
- As charter rates remain elevated in 2022 given the industry supply shortage, our estimates suggest a revenue growth of 15% in 2022, which implies a two-year CAGR of 27.1% over 2020-22.
Initiate coverage on Uni-Asia Group with BUY
- Initiate coverage on Uni-Asia with BUY and a target price of S$2.34, pegged to 8x 2021F P/E (-1 standard deviation to the mean). This compares to regional peers which trade at an average 8.6x 2021F P/E.
- Current valuations for Uni-Asia are attractive at 4.8x/4.2x 2021/22F P/E and 2022 dividend yield of 4.3%. Historically, the low valuation peg appended to Uni-Asia was due to a lack of liquidity, which we believe will improve given the strong earnings profile.
- See
- Continue to read the 22-page report attached for complete analysis on Uni-Asia Group (SGX:CHJ).
Clement Ho
UOB Kay Hian Research
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https://research.uobkayhian.com/
2021-10-28
SGX Stock
Analyst Report
2.34
SAME
2.34
