Brokers' take: KGI raises target price for Uni-Asia on strong dry bulk shipping market

CHJ : CHJ 0%, which invests in cargo ships and real estate, will likely gain from a stronger-than-expected dry bulk shipping market, KGI Securities said in a research note on Wednesday.

It raised its target price for the group to S$1.42 from S$0.91 while keeping its "outperform" call on the stock, adding that "it is not only meme stocks that are reaching for the moon".

KGI expects Uni-Asia's fleet of 18 bulk carriers, which consists of 10 handysize dry bulk carriers and eight ships under joint ventures, will drive financial performance when the group reports its H1 2021 results in August, amid favourable supply-demand dynamics.

It also noted that the value of dry bulk carriers has risen by 20 to 30 per cent this year.

An increase in iron ore and coal imports in China, and stronger grain and soybean exports from the US and Brazil are likely key growth drivers in the dry bulk market. The three commodities account for almost two-thirds of the global dry-bulk trade based on a tonnage basis, KGI said.

China, the largest importer of seaborne supply of iron ore and the world's top importer of soybeans, has ramped up its iron ore imports by 6 per cent in the first five months of 2021, something that should provide further tailwinds for dry bulk charter rates since they have longer haul lengths.

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The country has also ramped up its soybean purchase from the US as part of the Phase One trade deal, and increased its coal imports from Indonesia, Russia, South Africa, the US and Canada.

Furthermore, the research team noted that the group's property segment remains resilient and expects potential upside when its properties in Hong Kong are completed in the next three years.

It added that sales in Hong Kong will likely pick up in 2022 when travel restrictions ease, while its residential business in Tokyo has seen rents largely holding up and property sale prices remaining stable.

Uni-Asia's balance sheet has also remained healthy as the group has been paring down debt, which will likely lead to higher dividends, KGI said.

The counter closed at S$1, after rising 7.53  per cent on Wednesday.