PST – UOBKH

Raising earnings forecasts to reflect ship acquisitions

Raising our forecasts for ship acquisitions. We are raising our earnings forecasts for the acquisition of four new ships from Pacific Shipping Trust’s (PST) sponsor Pacific International Lines (PIL). Two of these ships are chartered back to PIL for a term of eight years while the other two ships will be chartered to CSAV, the largest liner shipping company in South America, for a term of five years. The four new ships will expand PST’s portfolio of vessels by 50% to 12 from its initial fleet of eight ships (which are on remaining charters of 6-8 years). In total, the four new vessels are expected to raise PST’s total contracted revenue p.a. by 79% to US$61.9m. We raise our 2008 and 2009 earnings forecasts to US$14.0m and US$17.8m for 2008 and 2009 respectively from US$13.9m and US$14.6m respectively, and initiate our 2010 forecast at US$19.4m.

Acquisitions to be funded by debt, thus causing gearing to spike up. PST is funding these new ships entirely by debt. We estimate PST’s net gearing will rise rapidly from 69% as of end-07 to 217% by end-08. However, we have assumed an issue of new shares of 25% of total share capital in 2009 and 10% in 2010. If the Singapore stock-market’s weakness continues into 2009, a rights issue would be more likely than a share placement. PST’s net gearing is forecast to fall below 100% by 2011. The trust has an acquisition target of US$200m p.a. Apart from the four new ships that have been announced, we have not factored in other ship acquisitions.

Despite issue of new shares in 2009 and 2010, DPU should still improve. Despite our assumption of new share issues in 2009 and 2010, we expect DPU to improve from 4.3 US cents in 2007 to 4.4 US cents in 2008 and 4.7 US cents in each of 2009 and 2010. These translate into DPU yields of 10.7-11.5% over the next three years. We maintain our target price of US$0.50 for PST, based on a fair value 2009 net yield of 9.5%. Maintain BUY.