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Uni-Asia Group well placed to gain from surging charter rates: PhillipCapital

PhillipCapital Research has taken a liking to Uni-Asia Group, which expanded into ship and property investments in 2010, thanks to record earnings from surging charter rates.

Analysts from PhillipCapital have initiated coverage on Uni-Asia with a “buy” recommendation and target price of $1.26, pegged to 3x price-to-earnings ratio (P/E) for FY2022.

This would give the stock a 21.15% upside from its $1.04 closing.

“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,” write the analysts.

“With record earnings, we expect Uni-Asia to pay a special dividend of 4 cents, double the amount paid last year,” they add.

Together with higher interim and final dividends, the analysts expect total dividends in FY2022e at 12 cents, up from 7 cents in FY2021, or an 11% dividend yield.

Freight rates for Uni-Asia’s fleet of 10 Handysize dry bulk ships were up 84% year-on-year (y-o-y) in 1Q2022, and PhillipCapital expects these rates to jump to around US$18,400 ($25,600) per day, from the average of US$13,000 per day in FY2021.

FY2022 patmi is expected to jump 40% to US$25 million, according to the analysts.

“We expect freight rates to remain elevated for the next two years. Supply is constrained by inefficiencies, such as port congestion and slower speeds, constrained shipyard capacity and uncertainty on future fuel types due to IMO 2030,” they write.

IMO 2030 refers to the targets set by the International Maritime Organization, which addressed the shipping industry’s carbon footprint as early as April 2018.

PhillipCapital believes the current freight rates can be sustained for the next two years, with the supply of vessels at a record low of 6.6% of the total fleet.

“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,” they explain.

“Other drivers constraining effective supply are slow steaming of vessels due to high fuel costs and port congestion,” add the analysts.

Downside risks, according to PhillipCapital, include a slowdown in global growth.

“Demand for bulk cargo is dependent on global GDP. Any slowdown in global growth will have a detrimental impact on the demand for bulk cargo and bulk carriers,” they write.

The major ship ordering cycle is also something investors should take note of. High charter rates have not yet resulted in a major supply response.

The Baltic Dry Index (BDI) reached record monthly lows in 2016 following the huge ordering cycle from 2007 till 2012.

As at 10.22am, shares in Uni-Asia are trading 1 cent lower or 0.96% down at $1.03.
Source: The Edge Singapore

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