Uni-Asia Group started at Buy by UOB KH on spike in freight rates

Singapore five-dollar note Photo by Leslie Shaffer

UOB Kay Hian started Uni-Asia Group at Buy with a S$2.34 target price, saying the under-the-radar dry-bulk operator would benefit from rising freight rates.

“Uni-Asia is a prime beneficiary and laggard of the more than 210 percent year-to-date spike in dry bulk freight rates. We believe freight rates will stay elevated at least until end-2022,” the brokerage said in a note last week. “We believe the perfect storm has begun for a demand surge in the dry bulk industry, where shipowners will likely benefit.”

The note pointed to a supply squeeze as vessels are stuck in ports longer, strong demand for some commodities and lower demand for newbuilds, the note said.

“A meaningful increase on the supply end is absent, based on the global outstanding orderbook for smaller-sized vessels (up to 40,000 dwt). This is because buyers are staying on the sidelines of new orders in anticipation of new ESG standards on vessel emissions. Also, any new vessel orders placed now will still require at least 24 months of construction,” UOB Kay Hian said.

With capacity expanding 3.3  percent this year and 1.4 percent in 2022, fleet growth is expected to lag demand, the note said, citing data from Clarkson Research Services, a unit of the world’s largest shipbroker.

Uni-Asia has a combined fleet of 18 handy-sized drybulkers, with 10 wholly owned and eight jointly owned, the note said, adding the fleet is usually hired out on a time charter basis. Six of the 10 wholly owned dry bulk carriers are up for renewal in the second half of this year, and three in the first half of 2022, UOB Kay Hian noted.

UOB Kay Hian estimated revenue in 2021 would rise 42 percent on-year.

The brokerage said the share’s valuation are attractive currently at 5.0 times 2021 price-to-earnings and 4.3 times 2022 price-to-earnings, while the 2022 dividend yield was at 4.1 percent.

Uni-Asia shares ended Friday down 4.1 percent at S$1.40.