Uni-Asia Group

Stronger-than-expected dry bulk shipping

KGI Securities analyst Joel Ng has upped his target price for Uni-Asia Group to $1.42 from 91 cents previously in view of “favourable supply-demand dynamics” for handysize dry bulk carriers.

He has maintained his “outperform” rating for the counter, with the higher target price predominantly underpinned by a higher FY2021 P/B multiple of 0.8 times used to value Uni-Asia’s shipping business, up from 0.5 times previously.

Ng notes that record demand for consumer goods and commodities, together with supply-chain disruptions, are driving charter rates for container liners and dry bulk carriers to their highest in more than 10 years.

According to Ng, three main commodities are driving the surge — iron ore, coal and soybeans.

For iron ore, Ng points to increased demand from China, the world’s largest importer

of seaborne iron ore. For the first five months of 2021, iron ore imports from China rose 6%. “The resumption of Brazilian iron ore exports after two challenging years is likely to provide further tailwinds for dry bulk charter rates since they have longer haul lengths,” Ng adds.

For coal, Ng cites data from Clarksons Research showing that demand for coking and thermal coal will rise by 6% and 4% respectively in 2021. “Ironically, the resilience in seaborne coal tonnage was partially driven by China’s ban on Australian coal, which has caused China to increase its coal imports from Indonesia, Russia, South Africa, the US and Canada,” Ng comments.

For soybeans, China again has driven grain and soybean exports from the US and Brazil. “China has brought in 38.2 million tonnes of soybeans in the Jan–May period, up 13% from the same period in 2020, as the country worked to rebuild its hog population,” Ng explains.

Given the favourable market conditions, Ng expects Uni-Asia to report a solid performance for its 1HFY2021 ended June, which will be announced on Aug 13. “We expect the group’s fleet of 18 bulk carriers (10 wholly-owned and 8 under joint venture entities) to drive financial performance,” he says.

Ng also views that Uni-Asia’s asset management and properties segment remains “resilient”. Given the ongoing travel restrictions, he notes that sales of its five Hong Kong commercial buildings currently under construction are delayed to at least 2H2021.

Nonetheless, he also points out that for Uni-Asia’s Japan residential business, projects under the Alero brand name are progressing as planned as rents have largely held up in Tokyo while property sale prices have remained stable.

Ng notes that Uni- Asia’s valuations remain attractive amid the upcycle. “Our new target price implies a 0.68 times FY2021 P/B, which is still a conservative 30% discount to international peers who are trading above one time P/B,” he comments.