Rickmers – UOBKH
2Q08: Results within expectations; management raise quarterly distribution by 5% as promised
Rickmers Maritime (RMT) announced a 6.0% qoq increase in charter income to US$23.7m accounting for 23.4% of our FY08 forecast. Charter revenue less vessel operating expenses increased by 6.3% qoq to US$18.7m accounting for 23.9% of our FY08 forecast. Earnings for the period increased 9.7% qoq to 9.2%.
Distribution of 2.25 US cents declared for 2Q08. RMT has increased its DPU for the period by 5% to 2.25 US cents within our expectations and management’s guidance. Payment of distributions is scheduled for 29 Aug 2008 with books closure date set for 20 Aug 2008 (units trade ex-distribution on 18 Aug 2008).
Greater financing by debt going forward. RMT currently has another 12 vessels scheduled for delivery between now and 2011 which were originally intended to be funded by equity. However, given the current market conditions, RMT’s management has opted to utilise greater debt funding for its acquisitions. Previously, RMT had guided on a self imposed Debt/ Equity target of 1:1. Going forward however, they are guiding on increasing this to approximately 7:3 and have guided that they feel comfortable operating at 75:25.
Earnings forecasts lowered as we shift our model to greater debt financing: No change to DPU forecasts. Given this change in RMT’s financing, we have adjusted our earnings forecasts to account for a greater proportion of debt financing and less equity financing. As such, our earnings forecasts for FY08 and FY09 have been increased by 18.6% and 8.7% respectively. Our DPU forecasts remain however remain unchanged as we expect RMT to retain a greater portion of cash due to the amortising nature of its new loans.
Maintain BUY; target price unchanged at US$1.19 (S$1.61). We continue to like RMT given its vessels are chartered out on long-term fixed time charters, with an average duration of 8.5 years. Counter-party risk is low given that RMT’s existing clients are within the top 12 liner companies in the world which include Maersk Lines, CMA CGM, Italia Maritima, Hanjin Shipping and Mitsui O.S.K. Lines. RMT is trading at an attractive distribution yield of 10.8%. We reiterate our BUY recommendation on RMT, with a target price of US$1.19 (S$1.61).