Uni-Asia Group - KGI Securities 2021-11-22: Bumper Year Ahead For Handysize


Uni-Asia Group - Bumper Year Ahead For Handysize

  • Still going strong. Uni-Asia Group (SGX:CHJ) provided a 9M21 business update. While no revenue and earnings were disclosed, the overall tone was positive. Industry trends for handysize dry bulk carriers remain supportive, even with the recent correction of the Baltic Dry Bulk indices. Meanwhile, HK’s property market is expected to improve upon the reopening of borders with China.

Strength to strength.

  • Uni-Asia Group did not provide any revenue or profit numbers in its 3Q business update. However, the disclosure of 9M2021 cash flows showed a positive picture.
  • Uni-Asia Group generated US$19.1mil of operating cashflows in 9M2021, a significant increase from US$4.8mil generated in 9M2020. It paid back around US$28mil in debt, bringing total borrowings down to US$85.1mil as at end-3Q2021. When accounting for the US$33.4mil in cash, net debt was only US$57.3mil.

Resilient demand for handysize dry bulk carriers.

  • Despite the 25% correction in the Baltic Handysize Index, Handysize charter rates in the market remain above US$25,000 per day vs Uni-Asia Group’s average charter income of US$14,321 in 3Q2021, leaving more upside as we head into 2022. Six of Uni-Asia Group’s wholly owned dry bulks will renew in 2H2021, three will renew in 1H2022 and one in 2H2022.
  • We expect Handysize charter rates to remain resilient at these levels amid a historically low order book, rising scrap rates and further cuts in operating speeds.

Dry bulk seaborne trade expected to remain healthy.

  • The US recently passed the US$1 trillion infrastructure plan that will ramp up demand for steel and other construction materials, thus driving up bulk shipping demand. The global economy is expected to expand 4.4% in 2022, with the potential to pick up in the second half of 2022 as supply chain problems are resolved. This is positive for dry bulk shipping companies as Seaborne trade is traditionally correlated with economic growth.

Bear markets are the authors of bull markets.

  • The dry bulk shipping market went through a challenging decade driven by the excess supply before the global financial crisis. 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%.

HK and Japan business update.

  • Uni-Asia Group’s five HK commercial properties will likely only contribute from 2H2022 onwards, given the relatively high HK office vacancy rates and weak leasing demand. Marketing of properties may start to pick up in 2H2022 upon the reopening of borders with China. Bloomberg reported that there could be a limited capacity reopening in January 2022.
  • Meanwhile, Uni-Asia Group’s property assets under management (AUM) rose to JPY32.0bn as at end- 3Q2021, up from JPY30.4bn as at end-2020.

Valuation & Action:

  • We maintain our OUTPERFORM rating and target price of S$1.56 for Uni-Asia Group, based on SOTP-based valuations.
  • The favourable supply-demand dynamics for handysize dry bulk carriers should benefit Uni-Asia Group over our forecast period. We maintain our multiple-based valuation for the shipping business at 0.8x FY2021F P/B and 0.6x FY2021F P/B for the Japan & HK property business.
  • Uni-Asia Group’s continues to pare down debt; this will likely be a precursor to higher full year dividends. Uni-Asia Group will report its FY2021 results on or before 28 Feb 2022.
  • Despite the 125% year-to-date rally of Uni-Asia Group's share price, Uni-Asia Group’s valuations are attractive amid the stronger-than-expected bulk carrier upcycle. Our target price implies a 0.7x FY2021F P/B, which is still a conservative 30% discount to international peers who are trading > 1.0x P/B.


Joel Ng KGI Securities Research | https://www.kgieworld.sg/ 2021-11-22