Rickmers – OCBC
Has derated significantly; maintain BUY
Second MOL acquisition completed. Rickmers Maritime (RMT) recently accepted delivery of its 12th vessel, MOL Dedication, the second of 13 additional vessels RMT is contracted to buy over 2008-2010. Newbuild MOL Dedication will be time chartered to Japan’s Mitsui O.S.K. Lines Ltd (MOL) for a 10-year period. It is the second of five 4250-TEU containerships costing US$72m each that will be chartered to MOL. The first, MOL Dominance, was delivered in June 2008. The remaining three MOL vessels are also expected over 2H08. Contributions from the five MOL vessels should increase RMT’s 2H revenue, which makes up 56.1% of our full-year estimate.
Ambitious growth plans. RMT’s debt-to-equity ratio had increased to 0.91x at 30th June from 0.77x as at the end of 1Q. Including MOL Dedication, RMT will spend US$288m on the Mitsui vessels coming in over 2H. Its heavy acquisition program continues beyond 2008: it will spend US$276m on the four vessels slated for FY09; and US$711.6m on the four megacontainerships to be delivered in FY10. On 2Q equity levels of about US$417m, this implies a debt-to-equity of roughly 1.6x by end FY08, 2.2x by end FY09, and 3.9x by end FY10.
Equity issue inevitable (but not immediately). RMT’s aggressive growth plans are supported by its ability to run time charters with long term visibility. It plans to fund the contracted acquisitions using a combination of retained cash, debt and equity. RMT has already arranged for new credit facilities to fund its FY08 and FY09 purchases. RMT has US$608.3m in unused debt facilities (before paying for MOL Dedication), which gives it some breathing space in the nearer term. However, an equity issue will be inevitable over FY09-FY10 in order to accommodate RMT’s debt repayment schedule and the US$771.6m vessels due in FY10.
Has derated significantly. In line with turbulent markets and the Singapore-listed shipping trust sector, RMT saw volatile movements in its share price last week. It fell to a low of 88 S cents on Thursday before recovering to 93.5 S cents by Friday’s close. A lot of the noise came from the broader market but a major RMT-specific concern is that institutional investors make up a significant portion of its unitholder base. Such overhang is a concern across the high-yield space including other shipping trusts, business trusts and S-REITs. RMT is our top pick for the shipping trust sector and we think today’s 13.6% yield (FY08F) looks attractive. Maintain BUY with S$1.22 fair value.