Uni-Asia Group - UOB Kay Hian 2021-11-16: Incoming Record-Breaking 2021 & 2022; Too Inexpensive To Ignore


Uni-Asia Group - Incoming Record-Breaking 2021 & 2022; Too Inexpensive To Ignore

  • Uni-Asia Group provided a 9M21 update, which highlighted a potential record high in 2021. The incoming 4Q winter heating season in the northern hemisphere is expected to keep the dry bulk market busy; beyond that, we believe freight rates will stay elevated at least until end-22 given the favourable demand-supply imbalance.
  • We are of the view that Uni-Asia Group’s valuation is too inexpensive to ignore. Maintain BUY with an unchanged target price pegged to 8x 2021F P/E (-1 standard deviation to the mean).

Uni-Asia Group's 9M21 operating cash flow more than tripled y-o-y.

  • Uni-Asia Group (SGX:CHJ) reported 3Q21 operating cash flow (OCF) of US$11.0m, exceeding 3Q20’s US$2.9m and 1H21’s US$8.1m. For 9M21, OCF of US$19.1m more than tripled y-o-y (9M20: US$4.8m). Assuming stable depreciation, finance charges and absence of any one-offs in working capital, we estimate 9M21 net profit to be in the range of US$10m-12m (2020: US$7.7m loss), almost matching the group’s record-high net profit of US$12.1m in 2007 since its IPO.
  • Additionally, we see a high probability of an upside surprise in its 2021 dividend payout ratio. As a gauge, a 30% dividend payout of our 2021/22F net profit forecasts of US$17.1m/US$19.6m translates to S$0.088/S$0.10 dividend, or 6.7%/7.6% 2021/22F yield respectively.

Charter income anticipated to continue northward.

  • Industry expert Marsoft expects the dry bulk market to remain strong going into the 4Q winter heating season in the northern hemisphere, as many countries rate of 2.7%/0.6% in 2021/22.

Baltic Dry Index not a good reflection of Baltic Handysize Index.

  • While the Baltic Dry Index (BDI) is generally used by the industry as an indicator of dryb lk freight rates, the composite index consists of sub-indices such as Baltic Capesize Index (40%), Baltic Panamax Index (30%) and Baltic Supramax Index (30%). Typically, as handysize drybulk vessels ( < 40,000 dwt) are the smallest in size across the dry bulkers, it is the most versatile in cargo loads such as soft commodities, cement, clinker, mineral sands, coal and steel products. Additionally, their smaller size allows access ports of all sizes.
  • Conversely, the larger Capesize (~180,000 dwt) and Panamax (~80,000 dwt) vessels are most cost effective in transporting raw commodities (coal, iron ore), hence their rates are the most sensitive to demand-supply changes. As a gauge, the BDI has fallen 50% over 7 Oct to 15 Nov 21. This compares to the 20% dip in Baltic Handysize Index over the same period.

Renewal of vessels’ rate to boost earnings.

  • Of the 10 wholly-owned industry supply shortage, this suggests a further revenue growth of 15% next year, which translates to another record-high EPS of US$0.25 (+15.2% y-o-y) in 2022.

Too inexpensive to ignore.

Clement Ho UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-11-16
SGX Stock Analyst Report BUY MAINTAIN BUY 2.340 SAME 2.340