• FY22 revenue and PATMI beat expectations at 118%/116% respectively of our forecast. Charter rates locked in during 1H22 offset the current sluggish environment. Dividends more than doubled to 14.5 cents.
• 2H22 PATMI rose 3% YoY to S$11.4mn, bolstered by average charter rate per day in 2H22, rising by 11% YoY to US$18.2k. A decline in property sales in Japan and a weaker currency was a major drag in revenue.
• We lower our FY23e earnings by 9% to US$17.4mn. Charter rates for bulk ships remain sluggish. The Baltic Exchange handysize index has declined by around 60% YoY in 1Q23. The company is coping with the softer environment by fixing more charters on a shorter-term basis. Our BUY recommendation is maintained with a lower target price of S$1.19 (prev. S$1.26). The target price is pegged to 4x P/E FY23e, a 40% discount to the much larger industry peers. Supply of handysize dry bulk vessels is expected to decline over the next two years due to uncertainty on future fuel type for vessels and a tighter financing environment.

The Positives

+ Growth in charter revenue. Charter revenue in 2H22 grew 12% YoY to S$31.2mn as the average charter rate per day expanded 10.6% to US$18,256. The company managed to lock in attractive rates in 1H22 despite a weaker environment. Uni-Asia wholly owns 10 dry bulk ships with another 8 as investments (~18% ownership stake in each vessel).

+ FY22 dividends more than doubled. Final and special dividends in FY22 jumped a combined 60% YoY to 8 cents per share. FY22 dividends more than doubled from 7 cents to 14.5 cents (or S$11.4mn). The payout ratio was around 30% (FY21: ~22%)

Phillip Securities Research has received monetary compensation for the production of the report from the entity mentioned in the report.

The Negative

– Decline in property sales. 2H22 property revenue declined significantly due to weaker Japanese currency and most of the projects sold were on a joint venture basis. We estimate the number of Alero projects sold in 2H22 was 5, down by 10 in 2H21. To recap, Uni-Asia will purchase land, builds 4-5 storey buildings with 10-30 unit apartments in Tokyo (named Alero), secures tenants and disposes the building to investors with a rental yield.

Outlook

From the recent peak in March 2022, the Baltic Exchange Handysize Index has corrected by   60% to current levels of around 700 (Figure 1). Any renewal of charters at spot rates by Uni-Asia in 1Q23 will be the weakest in more than 2 years. A positive has been the gradual rise in rates this year since the lows in January. The company has also been able to lock in medium-term charters at rates far higher than spot. It is a possible indication of higher rates in 2H23 as the recovery and re-opening of China builds momentum.

Supply of new handysize vessels remains muted. An issue is uncertainty over fuel type when ordering new vessels. If dual fuel is used for a vessel, it implies two tanks on the ship -1 fossil fuel and 1 alternative fuel (e.g. methanol or ammonia). However, there is insufficient space to accommodate both tanks. If only alternative fuel is deployed, vessel owners worry about sufficient supply or refuelling centres for such fuel. Another impediment to new vessels is the tightening of financing conditions and higher interest rates.

In the property division, no new funds will be deployed into Hong Kong before realizing proceeds from the existing five projects. Total investments in these five projects are US$23mn. On Alero, we expect a recovery in units sold as on-going projects (or pipeline for eventual sale) is 12 (FY21: 10).