Brokers' take: KGI raises Uni-Asia target price on higher demand for smaller carriers

KGI Securities on Thursday (Mar 3) maintained its "outperform" rating on Uni-Asia Group (UAG) CHJ : CHJ 0%, following the alternative investment company posting a net profit of US$18 million for the financial year ended Dec 31, 2021, its highest since its initial public offering in 2007.

In a research report, the brokerage increased its target price on the investment company to S$1.66 from S$1.56, as its valuations remain attractive amid the stronger-than-expected bulk carrier upcycle. UAG invests in cargo ships and real estate.

The price implies a "very conservative" 0.67 the forecasted FY2022 price-to-book value (P/B) ratio, which is more than a 30 per cent discount to international peers who are trading at more than 1 times their P/B ratio, said KGI analyst Joel Ng.

He added: "UAG now trades at almost half its book value, which we believe severely undervalues the market value of its bulk carriers."

The counter was trading at S$1.14, up 0.9 per cent or S$0.01, as at 3.36 pm.

Ng noted that UAG has an existing fleet of 10 wholly-owned handysize carriers with an average age of 10 years and charter renewals slated for 2022 and the first quarter of 2023, which is likely to be a significant beneficiary of this upcycle.

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This is based on the group posting higher average charter rates for 6 consecutive quarters and the favourable supply-demand dynamics for dry bulk carriers, particularly for handysize vessels as they are in short supply.

UAG, as a handysize bulk carrier specialist, is therefore at the right place at the right time, Ng said, adding that the current upcycle seems to be more robust than previous bull markets in the handysize dry bulk shipping market.

However, he noted that the group's 5 Hong Kong commercial properties, which will be completed progressively over the next 3 years, are likely to only start contributing from FY2023, instead of the previously projected second half of FY2022, due to the current Covid-19 situation in Hong Kong.

Nonetheless, Ng forecasts that UAG will continue to increase its property assets under management to drive up its asset management fees through its Japan residential business, as its projects are progressing as planned with stable rent and property prices in Tokyo.

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