Uni-Asia Group (UAG SP): Sailing to the moon

  • BUY Entry – 0.93 Target –1.42 Stop Loss – 0.85
  • UAG is an alternative investment company which owns and manages bulk carriers, invests in Hong Kong commercial offices and develops residential properties in Japan. The group derives around 65% of its revenues from charter income generated by its fleet of bulk carriers. The remainder of revenue is from its property projects in HK and Japan. While its shipping business performed poorly in 2020 due to weak charter rates and impairments, it has shown a strong V-shaped recovery in 2021. 
  • To the moon. It is not only meme stocks that are reaching for the moon. 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 ten years. 
  • More than a V-shaped recovery in charter rates. More specific to Uni-Asia’s fleet of 18 handysize carriers, the Baltic Handysize Index recently staged a strong rebound after a short-lived correction (triple from last year; see the Baltic Handysize Index shown below), and now trades above 1,500 points. Furthermore, we expect higher rates to be sustainable as it is driven by favourable supply-demand dynamics for small bulk carriers. 
  • Maintain Outperform and raise our TP to S$1.42. We maintain an Outperform rating while raising our TP to S$1.42, based on SOTP valuations. The favourable supply-demand dynamics for handysize dry bulk carriers should benefit the group over our forecast period. We raise the multiples for the shipping business to 0.8x FY2021F P/B (previously 0.5x FY2021F P/B); we also raise our multiple for its Japan & HK property business to 0.6x FY2021F P/B. Its balance sheet remains healthy as it continues to pare down debt; this will likely be a precursor to higher dividends. 
  • Read our full report here.

Baltic Dry Index Handysize Index (2016-2021 YTD)