Target Company: U-Ming Marine Transport Co.(裕民航運) Industry: Shipping industry Author: Meng-Chen, Tsai (蔡孟辰) - Copyright ownership belongs to Collaborator, shall not be reproduced, copied, or used in any other ways without permission. Otherwise Collaborator will have the right to pursue legal responsibilities. This report is produced for non-profit research within Collaborator internal and graduate alumni.

1. 1
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U-Ming Marine Transport Co.
(2606 TW / 2606 TT)
Profitable on rising freight rates
Freight rate outlook is promising as unbalance in global
seaborne dry bulk trade gradually fading out. According to
data from Clarksons and our estimates, the supply-demand
excess is shrinking year by year. We believe this trend is secular
and freight rates will therefore go up constantly for that decrease
in fleet supply is for sure and take experience from 2009, the
market tends to price freight rate higher in a very short period
once the demand growth accelerates.
Benefits from newer and more power-saving fleet will be
seen shortly. U-Ming’s tactic to update its fleet since 2012 has
nearly done. Now, the average age of vessels stands at around
5 years (excl. cement carrier), and almost 70% ships are
compliant with IMO’s new environmental regulations. All those
could give U-Ming an edge over other players because freight
rates of such ships are higher. Moreover, U-Ming can operate
its fleet more cost-efficiently; for instance, the average crew size
per ship is downsized to 19 people from 21 previously. Thus, we
forecast GM to pick up significantly.
Valuation
U-Ming is currently priced at 1.3x PB versus 6.9x for
competitors. Given U-Ming’s newer fleet, superior utilization
rate, more stable revenue of Panamax type and support from
Far Eastern Group, we would expect it to keep trading at a
premium. Our 12-month NT$39.15 target price is based on a
1.5x multiple applied to BVPS of NT$26.1 (2017E).
2017.08.14
Taiwan: Shipping
Overweight
Aug. 14, 2017
Price (NT$) 33.5
TAIEX 10,225.28
12M target (NT$) 39.15
Previous target N/A
Previous rating N/A
Upside/Downside (%) 16.9
Market Data
Market cap (bn)
Outstanding shares (M)
FINI ownership (%)
Debt/equity (X)
BVPS, 17E (NT$)
27.17
8,450
6.74
1.49
26.1
Key Metrics
12/16 12/17E 12/18E
Revenue
(NT$, mn)
GM (%)
EPS ($)
PB (X)
ROE(%)
EV/EBITDA(X)
6,391
(5.1)
(1.04)
1.22
(3.4)
15.8
8390
8.5
0.9
1.5
3.2
12.1
1,0827
24.9
2.7
1.7
10.0
9.0
Share price performance
Research Analyst
Steven Tsai
mengchen.t@gmail.com
0
50
100
150
01/10 01/11 01/12 01/13 01/14 01/15 01/16 01/17
TAIEX U-Ming
Investment Summary

2. 2
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Company Description
U-Ming Marine Transport Co., formerly known as Yue Ming
Transportation Co., is a subsidiary of Far Eastern Group. U-
Ming commenced operations in 1968 as a land transportation
firm; then being reorganized to a marine transportation company
in 1984 to meet the need of cement transportation from Asia
Cement Corp, also a subsidiary of Far Eastern Group. U-Ming
focuses on dry bulk and oil shipping businesses. Based in
Taiwan, U-Ming’s fleet is the most comprehensive among local
competitors.
U-Ming operates ships mainly under its wholly owned subsidiary
- U-Ming Marine Transport (Singapore) Pte. Ltd. (29 out of 43
vessels). Besides, U-Ming set up 4 main investment firms, which
contribute roughly ~2% of consolidated revenue.
Exhibit 1: U-Ming Company Structure
Source: Company data, Collaborator Research
Since 2012, U-Ming has been actively updating its fleet, making
shares of capesize, oil tanker, and panama larger, while
gradually phasing out cement carrier. Currently, after acquiring
2/3 new Capesize/Ultramax ships in. 2017, U-Ming operates 43
vessels as of Aug. 4, with the average age around only 5 years
old (excl. cement carrier). Besides, the share of fuel-saving ship
now stands at nearly 70% in terms of capacity.
U-Ming Marine
Transport Co.
U-Ming Marine
Transport (Hong Kong)
Ltd.
U-Ming Marine
Transport (Singapore)
Pte. Ltd
Yue-Li Investment
Corp.
Yue-Tung
Investment Corp.
Marine
Transportation
Overseas Shipping
Pte. Ltd. (OSPL)
Alliance Maritime Pte.
Ltd.
U-Ming (Xiamen)
International Ship Mgmt.
Co., Ltd.
100%100% 68% 74%
100% 100%
32% 26%
Marine
Transportation
Marine
Transportation
Marine
Transportation
Marine
Transportation
Falcon Investment
Private Limited (Falcon)
Eagle Investment
Private Limited
(Eagle)
100% 100%
Marine
Transportation
Investment
Marine
Transportation
Investment
Vessel
Service
Global Energy
Maritime Co., Ltd.
Marine
Transportation
40%

3. 3
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will have the right to pursue legal responsibilities. This report is produced for
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Industry Overview & Trend Exhibit 4: Baltic Exchange Indices
Since the financial crisis, the shipping industry has been
trapped in oversupply. Too many vessels have been built
while global trade has slowed down. Baltic Dry Index (BDI)
did not bottom out until the end of 2016.
Currently, the supply of dry bulk shipping industry has
significantly diminished over the past few years. The order
book in dwt as the percentage of service in dwt now sits at
around 11.21%, with most of them expecting to be delivered
in first halves of 2017/18. In addition, capacity growth of
different sizes of bulker differ; only VLCC and Panamax are
estimated to grow while rest of them fall by 2019.
Afterwards, all of them will fall due to ship-wrecking
activities and lack of newbuilding orders. Note that new
environmental regulations rolled out by IMO may boost
demolition activities before 2022.
On the demand side, based on data from Clarksons
Research (Table 1), about 33%, 25% and 8% of the world dry
bulk seaborne trade are iron ore, coals(coking coal & thermal
coal) and steel related product respectively;
Source: CEIC, Lloyds list
Exhibit 2: Fleet Capacity by Ship Type Unit: dwt Exhibit 3: Numbers of each Ship Type
Source: Company data, Collaborator Research Source: Company data, Collaborator Research
-
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
As of Aug. 4 2017E 2018E 2019E
Capesize Panamax Supramax Cement Carrier Oil Tanker
16
12
6
4
5
Capesize Panamax Supramax
Cement Carrier Oil Tanker
0
500
1,000
1,500
2,000
2,500
01/15 07/15 01/16 07/16 01/17 07/17
BHSI BSI BPI BCI BDI

4. 4
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if we look deeper into the numbers, we could find that China
almost dominates trades of commodities such as iron ore
and steel by having the largest share in global trade. Thus,
we would take China’s import of iron ore as the proxy for the
demand of dry bulk shipping.
From the chart of china fixed asset & infrastructure
investment (Exhibit 6), we can easily notice that freight rates
of iron ore (Capesize) are driven by FAI in China, particularly
by infrastructure investment. According to 2017 Economic
Blue Book published by Chinese Academy of Social
Sciences (CASS), the total fixed asset investment in China
in 2017 is estimated to be over 67 trillion yuan, 8.9% growth
in nominal term or 8.7% growth in real term, and
infrastructure investment is expected to be around 20 trillion
RMB or 20% YoY in 2017.
Take data from C.P., Clarksons, and IMF into consideration
(Exhibit 7). We think freight rates of dry bulk shipping will
rise secularly as FAI in private sector appears to be on the
rise and possibility that Chinese government will maintain
infrastructure spending while in the same period, the supply-
demand excess gradually become smaller and smaller.
Table 1: Top Importer & Exporter of
Major Dry Bulk
Source: The Observatory of Economic
Complexity (OEC), UN COMTRADE,
International Trade Administration of U.S.
Exhibit 5: Bulk Carrier Capacity Unit: mn dwt Exhibit 6: China FAI vs. Iron Ore Freight Rate
Source: Reuters Eikon Source: NBS, Baltic Exchange
Iron Ore Coal Steel
Top Country % Country % Country %
Importer China 61 India 52 U.S. 19
Japan 10 Malaysia 5.8 Germany 7
Exporter Australia 54 Indonesia 40 China 24
Brazil 22 Australia 26 Japan 9
-1%
0%
1%
2%
3%
4%
5%
6%
0
100
200
300
400
500
600
700
800
900
13 14 15 16 17E 18E 19E 20E
Mini Bulk
Handysize
Handymax
/
Supramax
Panamax
Capesize
Large
Capesize
VLOC
0
10
20
30
40
0%
10%
20%
30%
40%
02/13 11/13 08/14 05/15 02/16 11/16 08/17
FAI (Accu. YoY) FAI by state ( Accu. YoY)
FAI by private sector (Accu. YoY) Infrast. Inv. (Accu. YoY)
Brazil Tubarao-Qingdao(RHS) Aussie Dampier-Qingdao(RHS)
Unit: USD/mt

5. 5
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will have the right to pursue legal responsibilities. This report is produced for
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Operation Analysis
Revenue jump in H1 indicate possible recover in the
near future
U-Ming’s revenue has declined to 6,391 million in 2016 (YoY
-17.4%), the seventh consecutive year (excl. 2014). Yet the
downward trend seems to come to an end after strong
revenue result in 2017 H1 (YoY 34% for H1). The growth is
attributed to the increase in freight rate, especially that for
capesize. Rise of freight rate is pivotal to U-Ming’s
revenue growth because utilization rate of U-Ming is
incredibly high (90%+, company data).
Freight revenue consists over 98% of U-Ming’s revenue. In
2016, totally 36,468 thousand dwt goods were shipped, with
iron ore and coal primary cargo. However, in terms of YoY,
shipping amount has been subdued after peaking in
2014.
Exhibit 7: Global Dry Bulk Shipping Supply Demand Excess (Shortage) Unit: mn dwt
Source: Crucial Perspective, Clarksons, UNCTAD, IMF, Reuters Eikon, Collaborator Research
-5%
0%
5%
10%
15%
20%
(800)
(600)
(400)
(200)
0
200
400
600
800
1,000
1,200
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E
Supply-Demand Excess (Shortage) Supply growth (RHS) Demand growth (RHS)

6. 6
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copied, or used in any other ways without permission. Otherwise Collaborator
will have the right to pursue legal responsibilities. This report is produced for
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Exhibit 8: U-Ming’s Revenue Unit: mn, NTD Exhibit 9: Total Amount of Goods Shipped
Source: Company data Source: Company data
Cost reduction from fleet update/low bunker prices
The cost and expense have steadily decreased thanks to
sells of outmoded vessels and low bunker prices. A newer
ship will enable U-Ming to downsize its workforce required
for maintaining operations, for instance, average crew size
per ship fall from 21 to 19 people. Nevertheless, we still
believe the COGS in 2017 will increase slightly as new
vessels were put into operation.
Bunker price is usually an important factor for gross profit in
shipping industry (~40% of COGS, we estimate). Bunker
prices are quite stable over the past 3 years, basically in
pace with the development of oil prices.
Exhibit 10: Cost & Expense Unit: mn, NTD Exhibit 11: Bunker Prices Unit: USD/mt
Source: Company data Source: Clear Lynx
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
03/10 03/11 03/12 03/13 03/14 03/15 03/16 03/17
Net Sales YoY (RHS)
-15%
-10%
-5%
0%
5%
10%
15%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2010 2011 2012 2013 2014 2015 2016
Iron Ore Coal Cement
Oil Others YoY
Unit: T tons
0
100
200
300
400
500
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2008 2009 2010 2011 2012 2013 2014 2015 2016
Cost Of Goods Sold Operating Expenses (RHS)
0
100
200
300
400
500
600
700
01/14 07/14 01/15 07/15 01/16 07/16 01/17 07/17
HSFO180 HSFO380 MGO LSMO

7. 7
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copied, or used in any other ways without permission. Otherwise Collaborator
will have the right to pursue legal responsibilities. This report is produced for
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Exhibit 12: Margin Analysis Exhibit 13: Net NOI Breakdown Unit: mn, NTD
Source: Company data Source: Company data
Non-op. income/expense sway net income for years
Non-op. income plays a big role in pre-tax income for years;
it is normally a positive contributor to pretax income and is
more influential than ever recently as operating income
fluctuates around zero. Change in non-op. income largely
come from investment-related income (mostly dividends
received) and exchange gain (60%+/~20% of pretax
income, 5-yr average). For investment-related income, U-
Ming’s holdings are all subsidiary or sub-subsidiary of Far
Eastern Group, so equity method is adopted when
recognizing investment income.
Table 2: Long-term Investment Details
Source: Company data
-2,000
-1,000
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
-1,250
-850
-450
-50
350
750
1,150
1,550
1,950
2,350
2,750
2009 2010 2011 2012 2013 2014 2015 2016
Net Investment-related income Net Exchange Gain
Net Gain-Disposal F/A Net Interest Income
Others Operating Income (RHS)
Pretax Incom (RHS)
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
03/10 03/11 03/12 03/13 03/14 03/15 03/16 03/17
Gross Margin % Operating Income %
Pre-Tax Income %

8. 8
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Valuation: Initiated Coverage with 12-month Target Price of NT$39.15
At the current stock price of NT$33.5, U-Ming is priced at
about 1.3x PBR, which is much higher than the industry
average 6.9x. However, it is still below its 5-year average
1.35x; meaning that overall confidence in dry bulk shipping
industry still not resume.
Given how the market is valuing U-Ming, for target selection,
we apply a target multiple of 1.5x, which is slightly higher
than its 5-year average, for that: 1) High utilization rate will
benefit U-Ming’s profit immediately when the freight rates
go up. 2) Although panama type will keep growing even in
2018/19, U-Ming would be affected lesser since a certain
percentage of its current vessels are under long-term
contracts; also, normally freight rate for eco-ship is higher.
3) U-Ming is backed by Far Eastern Group, and therefore,
U-Ming is less to be faced with financial distress.
Potential risks
1) Recently, oil price is increasing on the news that OPEC
will be stricter on curbing oil production. This might drive up
the cost. 2) It’s possible that rebounds in G7 are temporary,
and this can make U-Ming even worse under heavier
maintenance burden derived from larger fleet.
Exhibit 14: Revenue Breakdown
Source: Collaborator Research Estimate
Exhibit 15: PBR vs. Quick Ratio Exhibit 16: U-Ming PB Band
Source: Company data, TEJ Source: Company data, TEJ
0
2,000
4,000
6,000
8,000
10,000
12,000
2016 2017E 2018E
Capesize Panamax Handymax Others
Unit: mn, NTD
6,391
8,390
10,826
0.5
0.6
0.7
0.8
0.9
1
1.1
1.2
1.3
0% 50% 100% 150% 200%
PBR
Quick Ratio
U-Ming (2606 TT) Wisdom (2637 TT)
Chinese Maritime (2612 TT) Sincere Navigation (2605 TT)
Taiwan Navigation (2617 TT) Shih Wei Navigation (5608 TT)
15
25
35
45
55
65
75
01/10 12/10 11/11 10/12 09/13 08/14 07/15 06/16 05/17
0.7x 0.9x 1.2x 1.5x
1.8x 2x 2.3x U-Ming

9. 9
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Financials & Valuation

10. 10
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Disclaimer
 These report contain certain forward-looking statements with
respect to the results of operation, financial condition and
current expectation about future events. By their nature,
forward looking statements involve risk and uncertainty
because they relate to events and depend on circumstances
that will occur in the future.
 In preparing the information herein, Collaborator have relied
upon and assumed, without independent verification, the
accuracy and completeness of all information available from
public sources or which was provided to Collaborator or
which was otherwise reviewed by Collaborator. Neither
Collaborator nor its advisors have made any representation
or warranty as to the accuracy or completeness of such
information and nor so they assume any undertaking to
supplement such information as further information becomes
available or in light of changing circumstances.
 None of Collaborator, nor any of their respective affiliates,
advisers or representatives shall have any liability
whatsoever (in negligence or otherwise) for any loss
howsoever arising from any use of this presentation or its
contents or otherwise arising in connection with this
presentation.
 Neither this presentation nor any of its contents may be
reproduced to a third party without the prior written consent
of Collaborator.