PST – UOBKH

Proposes a non-renounceable 3-for-4 rights issue at US$0.365/unit

Proposes a non-renounceable 3-for-4 rights issue. Pacific Shipping Trust (PST) has announced a non-renounceable rights issue of 252.75m units at US$0.365/unit (5.2% discount to the volume weighted average share price on last Friday) to raise US$92.3m cash to partially fund the acquisition of four vessels, namely two 1-800-TEU container vessels – Kota Nabil and Kota Naga – and two 4,250-TEU container vessels – CSAV Laju and CSAV Lauca. These four vessels are acquired at a total cost of US$222m and will increase PST’s shipping fleet from eight to 12 vessels. The rights issue will be on the basis of three new units for every four existing units held. Pacific International Lines (PIL), PST’s sponsor, undertakes to subscribe for its entitlement, based on its current direct stake of 34.64% in PST. PIL also undertakes to subscribe new units that are not taken up by minority unitholders, without triggering a mandatory offer. The rights issue is expected to close by end-Sep 08.

Dividend yield will be intact. PST targets a long-term debt-to-assets gearing of 60%. 98% of the net proceeds of circa US$90m from the rights issue will be utilised to reduce borrowings incurred for the acquisition of new container vessels in 2008. We revise our 2008, 2009 and 2010 net profit forecasts by 0.6%, 18.9% and 16.7% respectively to US$16.5m, US$25.8m and US$27.2m. However, we adjust downward our 2009 DPU from 4.7 US cents to 4.4 US cents due to a marginal dilution by the rights issue despite interest savings. 2010 remains unchanged at 4.7 US cents.

Balance sheet strengthened for more vessel acquisitions. Post rights issue, the trust would have a balance credit facility of US$121m for acquisition of additional vessels, which should enhance future DPU. Our earnings forecasts have not factored in the acquisition of other vessels besides the four new vessels acquired in 2008. In view of a reduced forecast DPU for FY09, we lower our target price from 50 US cents to 47 US cents. Our fair value is pegged at FY09 net yield of 9.5%. PST offers an annual net yield of 11.7% for 2008 and 2009 and 12.5% for 2010. Despite a large rights issue, PST still offers very attractive dividend yields.