Month: August 2008
HWT – BT
Distributions on track
Story: Hyfux Water Trust once again surprised us on the upside, with 2Q08 net earnings of S$2.2m (up 94% q-o-q) adding up to almost 52% of our existing FY08 forecast. Net payout to investors for HY08 stood at 2.17 S cents (after Hyflux waiver) as against projected DPU of 2.09 S cents as per IPO prospectus.
Point: The surprise in earnings was mainly a result of lower-than-expected operating expenses and lower trust expenses. HWT continues to excel as far as cost management is concerned and even bettered its1Q08 operating margins (68% in 2Q vs. 48% in 1Q), with operating expenses of only S$1.2m on tariff receipts of S$3.8m. Tariff receipts were up 19% q-o-q as utilisation rates jumped from 51% in 1Q08 to 63% in 2Q08 and two more plants were completed, bringing the design capacity of completed plants to 325,000 cu m/day. The Trust looks to be on track to meet its DPU guidance of 4.88 S cents (after waiver) for the year – given that the remaining three plants are expected to be completed before the end of the year and utilisation rates should move closer to 70%. Management is further negotiating organic expansion potential for four existing plants of about 155,000 cu m/day, which should see closure in 6-9 months.
Relevance: We have revised up our DPU forecast for FY08 by 7% to account for the better-than-expected margins achieved in 2Q08, while leaving our FY09 forecasts unchanged awaiting further visibility on the sustenance of margins. Our DDM-backed Target Price remains unchanged at S$0.90 and we continue to maintain BUY on the stock, while keeping a close watch on how the acquisition scenario unfolds as HWT deliberates on the first tranche of assets offered by sponsor, Hyflux. Current dividend yield is attractive at 7.5%-8.4% for FY08-09 and represents a good entry point, in our opinion.
Rickmers – BT
Rickmers beats Q2 forecast with US$9.2m profit
SHIPPING trust Rickmers Maritime reported a net profit of US$9.2 million for the second quarter ended June 30, 53 per cent higher than its forecast.
Total revenue of US$26.22 million also beat projections by 14 per cent, while the distribution per unit (DPU) was 2.25 US cents, 5 per cent more than the forecast 2.14 US cents.
Rickmers Maritime was constituted on March 30, 2007, and commenced activities only upon its listing on May 4, 2007.
As such, comparisons were done with projections as ‘comparisons with actual figures would not be meaningful’.
For the first six months of the year, net profit totalled US$17.59 million, 53 per cent better than forecast, while US$50.87 million was chalked up in total revenue, 19 per cent higher than the projected US$42.65 million.
DPU for the first half was 4.39 US cents compared with the forecast 4.28 US cents.
The strong performance was on the back of smooth operation of the fleet, lower cost of lubricant oil and early delivery of newbuildings, Rickmers Trust said in a statement.
Charter revenue for 1H08 amounted to US$46.01 million, 8 per cent higher than expected.
‘We secured a total debt of US$627.5 million in the midst of credit crisis as well as achieved shareholder approval for Rickmers Maritime to raise up to US$650 million of equity. These measures provide us with sufficient financing flexibility to execute our acquisition strategy going forward,’ said Quah Ban Huat, CFO of Rickmers Trust Management, the trustee-manager.
As at June 30, Rickmers Maritime’s portfolio comprised 11 container ships, which are chartered out on long-term, fixed-rate time charter basis with an average remaining charter period of seven years.
Rickmers’ shares closed one cent down at $1.13 yesterday.
HWT – BT
Hyflux Trust first-half DPU rises 4%
Interim period saw distributable cash of $4.5m
HYFLUX Water Trust (HWT), the first pure-play global water business trust to be listed in Asia, yesterday reported distributable cash of $4.5 million for the first half of the year.
This translates to distribution per unit (DPU) of 2.17 cents – 4 per cent higher than the forecast 2.09 cents. Based on yesterday’s closing price of 63.5 cents per unit, the DPU works out to an annualised yield of 6.8 per cent.
However, HWT is forecasting full-year DPU of 4.88 cents, reflecting a yield of about 7.7 per cent, and the trust said it expects to meet the forecast.
For the second half of the year, utilisation rate of its water treatment plants is expected to increase, while more plants will be completed, the trust said.
‘We are pleased that HWT has exceeded its forecast for its first distribution,’ said Saud Siddique, chief executive of the trustee-manager. ‘HWT’s performance is underpinned by the positive outlook in the water industry in China, and the strong fundamentals of our projects.’
Mr Siddique said that of the trust’s initial portfolio of 13 water treatment plants in China, 10 are in operation while the rest will be finished by the year-end.
There are no comparison figures for the previous period as the trust’s portfolio was constituted only late last year. The trust distributes cash every six months.
For the quarter ended June 30, HWT reported total revenue of $16.7 million and net profit of $2.2 million.
This was double the Q1 net profit of $1.1 million on lower trust expenses, hedging and forex gains, said Grace Goh, HWT’s chief financial officer and chief investment officer.
Nine plants from sponsor Hyflux Limited with total capacity of 290,000 cubic metres a day are now being considered for injection into the trust and HWT is on target to submit the proposed injection to unitholders for approval by November this year, Mr Siddique said.
‘We are focusing on growing the asset base as fast as possible. As we bulk up we will become more attractive to a wider investor base,’ Mr Siddique added. In all, Mr Siddique said, the trust has a ROFOAR (right of first refusal and right to match) pipeline from sponsor Hyflux of 20 projects totalling 815,000 cubic metres a day, spread over seven provinces in China.
He added that the trust, which now has no gearing, is actively seeking debt financing to expand its portfolio of water treatment plants.
HWT has secured a committed three-year revolving credit facility of US$66 million with an interest margin of Libor/Sibor plus 98 basis points.
The trust is targeting up to 50 per cent gearing, using debt from banks rather than bonds, Mr Siddique said, and it may look to equity financing once that threshold is reached.
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).
Reits – BT
Yields are attractive but they are subject to movements in cyclical property market
By EMILYN YAP
(SINGAPORE) High yields and strong results are making real estate investment trusts (Reits) stand out in a volatile market. But there is debate over their potential as defensive plays, with some market watchers cautioning that Reits are not necessarily safer bets because of their link to the cyclical property sector.
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Most Reits turned in impressive results for the quarter ended June 30, 2008. The 18 which reported their performance before last Friday all achieved higher distributable income and distribution per unit (DPU) over the same period last year.
Distribution yields reported by the Reits, based on annualised DPUs and last Friday’s closing prices, ranged from 4.8 per cent to 11 per cent. Reits which offered yields above 10 per cent included MapleTree Logistics Trust, healthcare-related First Reit and Lippo- MapleTree Indonesia Retail Trust.
Overall, the Reits had an average distribution yield of around 7.8 per cent, offering a spread of over 4.6 percentage points above the 10-year Singapore government bond yield of 3.14 per cent on Friday. Compared with one-year fixed deposit rates which start from around 0.8 per cent, the Reits offered an even wider spread.
Analysts say Reits have largely performed in line with expectations. Their good performances have won them fans – with many trading at discounts to net asset values and thus offering relatively high yields, OCBC Investment Research said in a recent report that investors could ‘take a fresh look at S-Reits as defensive vehicles offering stable cash flows and high yields’.
However, others pointed out that Reits still may not match up to traditional defensive plays, including high-yielding blue chips like telcos and banks. While Reits do offer high distribution yields, the sector is influenced by movements in the property market, which tends to be more cyclical compared with, for instance, the telecommunications industry, or even banking, they say.
Distribution yields are also a function of Reits’ unit prices, so yields may look high simply because unit prices have dropped, explained one analyst. Considering both capital gains and distributions to investors, Reits have not done as well compared to around a year ago, he added. The FTSE ST Reit Index has fallen by more than 10 per cent since it was launched on Jan 10 this year.
Reit fans, on the other hand, argue that few sectors are completely resistant to economic slowdowns. Also, some Reits may be more resilient because they can lock in leases over several years, which helps stabilise earnings.
Where there is agreement among most of the market watchers BT spoke to is that Reits will continue to generate steady operating results. For those which have locked in leases or are able to gain from higher rental reversions on lease renewal, ‘there is a lot of predictability in terms of their earnings and distributions,’ said Daiwa Institute of Research analyst David Lum.
With credit conditions staying tough, however, much of the earnings growth will have to come organically. Reits may still acquire properties but they will have to be more selective, analysts say.
Analysts’ top Reit picks include Suntec Reit. ‘With 32.6 per cent of total office net lettable area up for renewal in FY09, we believe Suntec is well-positioned for rental reversion with current $14 psf signing rents versus passing rent of around $6.30 psf,’ said a Citi Investment Research report last week.
CapitaCommercial Trust was another popular choice. Goldman Sachs reiterated its ‘buy’ call on the Reit, favouring its strong organic growth and ‘leadership among office Reits’.