PST – UOBKH

Lower DPU in 1Q08, but should improve with new ships

Pacific Shipping Trust (PST) reported a net profit of US$0.47m for 1Q08. Excluding fair value losses on interest rate swaps of US$3.6m, net profit would have been US$4.1m. This appears to be ahead of our 2008 net profit of US$14.0m on what appears to be lower-than-expected depreciation of US$2.5m (1Q07: US$3.2m). Net profit for the remaining quarters of 2008 should register higher earnings due to the impact of four new containerships. Our earnings forecasts do not take into account gains/losses on interest rate swap contracts. These gains/losses are non-cash items and fluctuate from quarter to quarter depending on interest rate movements. Such gains/losses have no impact on PST’s distributable profit and cash.

However, PST has declared a DPU of 0.97 US cts, 6.7% lower than 1Q07’s 1.04 US cts. Income available for distribution was US$3.3m (1Q07: US$3.4m) after retaining US$0.5m for working capital. PST has lowered its payout to 90% from 100% because it believes it is prudent to set aside cash to provide for future working capital and to support long-term strategic development of the trust. We are maintaining our earnings and DPU forecasts.

The four new ships to be delivered in 2008 will expand PST’s portfolio of vessels by 50% to 12 from its initial fleet of eight ships. In total, the four new vessels are expected to raise PST’s total contracted revenue p.a. by 79% to US$61.9m. We maintain our target price of US$0.50 for PST, based on a fair value 2009 net yield of 9.5%. Maintain BUY.