Uni-Asia Group - Phillip Securities 2022-07-01: A New & Higher Plateau


Uni-Asia Group - A New & Higher Plateau

  • 1Q22 freight rates for Uni-Asia Group's fleet of 10 Handysize dry bulk ships are up 84% y-o-y to around US$18.4k per day. Uni-Asia Group's FY22e PATMI is expected to jump 40% to US$25mil.
  • We expect freight rates to remain elevated for the next two years. Supply is constrained by inefficiencies (port congestion and slower speeds), constrained shipyard capacity, and uncertainty on future fuel types due to IMO 2030.
  • Initiate coverage on Uni-Asia Group (SGX:CHJ) with a BUY rating and a target price of S$1.26. Our target price is pegged to 3x P/E FY22e, in line with industry peers. We believe the tight supply of dry bulkers will keep freight rates elevated for longer. Orders for dry bulkers are at a record low, as a percentage of the order-book. We expect Uni-Asia Group to pay special dividends from their record earnings.

Uni-Asia Group - Company Background

  • Founded in March 1997, Uni-Asia Group (SGX:CHJ)’s origins were in structured finance and distressed asset investments. The company was listed on the SGX on 17 August 2007.
  • In 2010, Uni-Asia Group expanded into ship and property investments. The core businesses of the company are the chartering of bulk carriers, investment properties in Hong Kong and the management and sale of residential projects in Japan. All 10 Uni-Asia Group's bulk carriers are Handysize type vessels.

Uni-Asia Group - Investment Merits

  • Record earnings from surging charter rates. Uni-Asia Group's Freight rates in FY21 were averaging US$13k per day. We expect this to jump to around US$18k per day. 1Q22 has seen an 84% spike in freight rates. With a fleet of 10 vessels – 9 of which are due for renewal this year - it can ride on the spike in freight rates. Fuel cost is borne by the shipping operator, and we expect vessel operating costs to rise around US$850 per day or 15% to US$6,000. The increase is due to higher crew costs.
  • Supply conditions remain very tight. We believe the current freight rates can sustain for the next two years. The supply of vessels is at record lows of 6.6% of the total fleet. Furthermore, with 11% of the fleet more than 20 years, any new delivery of vessels is likely to replace older ships rather than result in a net expansion in fleet size. Handysize has an even older fleet at 15% above 20 years. The limited number of bulk carriers being ordered is due to uncertainty of the future fuel type for vessels and limited yard capacity due to a surge in container ship orders. Other drivers constraining effective supply are slow steaming of vessels due to high fuel costs and port congestion.
  • Stronger balance sheet and higher dividends. With record earnings, we expect Uni-Asia Group to pay a special dividend of 4 cents, double the amount paid last year. Together with higher interim and final dividend, Uni-Asia Group's total dividends in FY22e are expected at 12 cents (FY21: 7 cents) or 11% dividend yield. The payout is around US$13mil, around a 50% payout ratio. Free-cash flow generated totalling US$68mil over the next two years will swing Uni-Asia Group into the net cash position by FY23e. Uni-Asia's share price is trading at a 50% discount to book value.

Uni-Asia Group - Valuation

Phillip Research Team Phillip Securities Research | https://www.stocksbnb.com/ 2022-07-01
SGX Stock Analyst Report BUY INITIATE BUY 1.26 SAME 1.26