• The average charter rate in 1Q23 for Uni-Asia was US$12,423/day, a 33% YoY decline and below our US$14,500/day estimate for FY23e. From April, the Baltic Handysize continued to weaken into June, a decline of around 30%.
• Near-term strategy is to explore taking advantage of the attractive second-hand value of their fleet of bulk carriers. In March, a joint-venture vessel was sold for an undisclosed sum. The funds will be redeployed into new bulk vessels at a later stage or for property investments.
• We are lowering our FY23e PATMI by 22% to S$13.7mn. We downgrade our recommendation from BUY to ACCUMULATE. The target price is lowered to S$0.94 (previously S$1.19), in line with industry peers at 4x PE. New orders for Handysize vessels continue to be weak with industry supply expected to shrink 2.7% in 2023.

The Positives

+ Plans to monetize vessels. Valuations for 2^nd hand vessels remain stable. Uni-Asia sold a 49% joint venture vessel in March 2023. We estimate the gain on sale is US$3-4mn. Vessel owners are hesitant to order new vessels. There is uncertainty over the fuel type that meets future emission standards. Larger bulk carrier orders are gravitating towards methanol as the dual fuel with fossil fuel. However, Handysize vessels are too small to accommodate both fuel types.

+ Alero pipeline refreshed. Uni-Asia’s pipeline of residential projects in Tokyo (called Alero) in 1Q23 is improving to 13 ongoing or new sites. This compares with 9 ongoing sites a year ago. The number of projects sold has declined from 4 to 2.

The Negative

– Weakening freight rates. The Baltic Exchange Handysize Index is down 27% this year. Despite the re-opening in China, the rebound has been slower than expected. In 1Q23, industry data pointed to increased volumes for iron ore post emission controls in China during the Beijing Winter Olympics last year. Coal volumes also performed better after the Indonesia export ban in 2022. Minor bulk and grain loading have been weak.