Brokers' take: KGI upgrades Uni-Asia to 'outperform' with higher S$0.91 target price

KGI Securities has upgraded its call on Uni-Asia Group to "outperform" from "neutral" on the notion that the stock's valuations are now attractive amid an ongoing bulk carrier upcycle, and in view of resilient property markets in Japan and Hong Kong.

Its target price for Uni-Asia, which invests in cargo ships and real estate, has been raised to S$0.91 from S$0.54 to imply 0.44 times FY2021 price-to-book (P/B) value.

"Based on the latest business update, 2021 is off to a great start. Its shipping business, which now makes up 60-70 per cent of revenue, has strongly recovered," noted analyst Joel Ng in a report on Monday.

KGI has introduced a higher valuation multiple for the group's shipping business of 0.5 times FY2021 P/B value compared to 0.2 times FY2021 P/B value previously, while maintaining the Hong Kong and Japan property business at 0.5 times FY2021 P/B value.

The group's hotel management business' valuations have been removed from the total sum-of-the-parts valuation as it was originally expected to be the "most promising business segment prior to the severe impact of Covid-19 on the hospitality industry", according to Mr Ng.

Meanwhile, the analyst is especially positive on Uni-Asia's shipping business segment, given a recovery in commodity prices over the past decade, which has in turn boosted shipping prices.

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"Since the start of 2021, the supercharged rally in commodity prices has made shipping the most expensive in more than ten years. The recovery in commodities and dry bulk shipping is driven mainly by the strong demand for almost every kind of commodity on the back of broad-based economic recovery and massive stimulus measures worldwide," he added.

While sales of Uni-Asia's commercial units in Hong Kong are expected to be delayed until at least H2 2021 due to travel restrictions, he is forecasting sales to pick up in 2022.

Mr Ng also highlighted that the group's projects in Japan under the Alero brand are progressing as planned, as rents have largely held up in Tokyo while property sale prices have remained stable, in his view.

"We applied a 50 per cent to the net book value of its Hong Kong and Japan properties and developments, which we believe conservatively values the potential upside when the properties are completed," he said.

Shares of Uni-Asia closed at 71 Singapore cents or 6.77 per cent higher on Monday.