PST – DBS

Attractive yield

Story: PST has announced plans to raise 272.75m new units (representing a 75% increase in units issued) at US$0.365 per unit. It will be offered to shareholders on the basis of 3 new units for every 4 units held. The EGM is scheduled to take place on 27 Aug and the exercise to be completed by end Sep 08.

Point: Total net amount raised of US$90.2m will be used to partly fund its vessel acquisitions of US$222m, of which two have been delivered, another two scheduled for delivery in Sep 08 and Nov 08 respectively. The acquisition of these four vessels will raise its fleet size to 12 vessels and its slot capacity by 87% from 13,864 TEUs to 25,964 TEUs. The equity fund raising exercise (EFR) will also result in PST having debt headroom of US$120m (translating to leverage of 60%) for future acquisitions, either from PIL’s pipeline and/or third parties.

Relevance: PST is the first shipping trust to undertake an EFR. Our forecast assumes US$120m of acquisitions for next year. We estimate DPU to be 4.1UScts and 4.2UScts per share for FY08 and FY09 respectively based on a 90% payout ratio. At US$0.375, PST is offering a yield of 11.1%. We peg a target price of US$0.45 (adjusted down from US$0.52) based on a target yield of 9%, the average of closest peers Danaos and Seaspan. Maintain BUY.