PST – DBS
Steadily improving outlook
• 4Q09 DPU payout of 0.83UScts as per expectations
• 70% DPU payout ratio in line with strategy to conserve cash for acquisitions
• Key customer CSAV concludes 2nd round of equity fund raising, credit ratings show improvement
• Raising FY10 DPU estimates by 15%, upgrade to HOLD; TP raised to US$0.30
Operations stable. PST announced a DPU of 0.83UScts for 4Q09, very much in line with our expectations. All key numbers – revenue, operating profit and net profit – were largely unchanged on a sequential basis. Distributable income of US$4.9m (up 1% q-o-q) amounted to roughly 70% of the net cash generated – unchanged from 3Q09, and is in line with management’s strategy of conserving cash with a view of acquiring new vessels at attractive valuations.
Outlook on the CSAV front looks better. CSAV recently concluded a second round of equity raising worth US$290m, paving the way for the 3rd round of capital injection (US$360m) from German ship owners – by way of charter rate cuts – which was conditional on the success of the first two rounds of fund-raising. Credit rating agency S&P, while reaffirming its “B-” credit rating for CSAV recently, removed CSAV from the CreditWatch list and noted that the company’s financial flexibility had improved. S&P also maintained its “BB-” rating for PIL in its last update.
Upgrade to HOLD. Currently, our FY10 numbers assume a 30% cut in charter rates for the CSAV vessels, but we believe the probability of such a cut may be lower now, given the improving industry fundamentals in general and CSAV’s balance sheet in particular, and the fact that PST’s 2 ships
could be well below CSAV’s radar for renegotiations. Thus, we now ascribe a 50% probability to the event of a rate cut, and raise our FY10 DPU estimate to 3.0UScts from 2.6UScts earlier. Our TP is likewise revised to US$0.30, pegged to 10% target yield, based on counterparty risk profile. Upgrade to
HOLD. A favourable resolution to the CSAV saga could be a key re-rating catalyst, as would be DPU accretive acquisitions.