PST – UOBKH
PST (PST SP)
Share Price: US$0.41
Target Price: US$0.50
PST has announced that it is acquiring from its sponsor Pacific International Lines (PIL) two new 1,800 TEU container vessels at US$43m each. The acquisitions are pursuant to a right of first refusal agreement entered into between PST and PIL dated 25 April 2006 and will increase PST’s fleet by 16% from 22,364 TEUs to 25,964 TEUs. The new vessels are currently being built by Dalian Shipbuilding Industry Co. Simultaneously, PST has entered into bareboat charters with PIL. The charter hire per vessel has been agreed at a fixed rate of US$11,550 per day for eight years commencing from the date of completion of the acquisitions.
The vessels have been valued by Howe Robinson Marine Evaluations at US$43m, as at 23 Oct 07 on a charter-free basis. The vessels are scheduled to be delivered by Dalian Shipbuilding to PST in Mar 08 and May 08 respectively. PST expects the acquisitions to be accretive to PST’s distributable cash flow once they are delivered and in operation. The vessels will increase PST’s current aggregate contracted revenue by 15.7 % to approximately US$ 61.9m per annum. The acquisitions will also increase PST’s current contracted fleet from 10 to 12 vessels.
PST intends to fund the acquisitions wholly with debt finance although the final financing structure will be subject to further evaluation by the trustee manager. In determining the appropriate financing for PST in respect of the acquisitions, the Trustee-Manager will take into account amongst others prevailing market conditions and the relative costs of financing with a view to arriving at an efficient capital structure for PST. There will be no acquisition fee payable to the Trustee-Manager in connection with the acquisitions.
We estimate the two vessels will contribute a gross charter income of US$4.2m per vessel. Net of trustee fees, the operating profit before funding cost is US$4.0m per vessel. This translates into a net asset yield of 9.4% (operating profit before funding). Assuming cost of debt at 6%, the accretion to PST’s distributable cash flow before debt repayment is 3.4% or a total US$2.9m for both vessels. This represents an increase of 16% on our FY09 projected distributable cash of US$17.9m for PST. The actual impact on distributable cash flow will depend on the debt repayment structure. If PST were to adopt the same debt structure of as the other two shipping trusts, Rickmers Maritime and FSL Trust (i.e. a balloon or bullet repayment structure with no or minimal debt repayment in the vessels’ initial years), the acquisitions will be significantly accretive to distributable cash. Among the three shipping trusts, PST is already the most conservative in repayment of debt related to the initial shipping fleet. It is currently repaying its debt over 10-12 years from IPO against its initial fleet’s remaining useful lifespan of 26 years from IPO.
Maintain BUY and our target price of US$0.50. PST currently trades at a net dividend yield of 10.4%.