PST – OCBC
No surprises at 4Q results
No surprises at 4Q results. Pacific Shipping Trust (PST) recorded a 7.6% YoY increase in 4Q09 gross revenue to US$15.6m and a 10% YoY increase in cash earnings to US$11.3m. The gains were due to full revenue contributions from CSAV Lauca, which was acquired mid-way in 4Q08. On a QoQ basis, revenue was flat, while cash earnings rose 1.2%. FY09 revenue and cash earnings were within 0-4% of our estimates. PST will pay out 0.827 US cents per unit to investors, which translates to an annualized yield of 12%.
Reduced payout continues. Distributed income rose 1.1% QoQ but fell 11.1% YoY to US$4.9m. This is as PST has lowered its distribution payout level from 3Q09 onwards. The current payout is equivalent to 69.6% of income available for distribution (4Q08: 87.4%) or 43% of cash earnings (4Q08: 53%). PST has paid off US$17.1m in loans this year, and holds another US$17.9m in cash as of 31 Dec. The trust is geared at 0.9x debt-to-equity at year end. The manager reiterated plans to use the retained cash towards acquisitions that diversify the trust out of the sickly container sector.
Rate cut discussions with charterer are still ongoing. PST has two vessels leased to CSAV. The trust said it was “encouraged” by recent events at CSAV: the liner recently completed its second equity fund-raising and it obtained shareholders’ approval for its third equity offering. While CSAV’s situation is stabilizing, it remains to be seen whether that will make the operator any more yielding when it comes to discussions with PST. Our view is that renegotiations are a broader industry issue and rate cuts will be hard to avoid.
No major changes to our views. There has been some positive news in the container markets as of late with liners attempting to increase rates on key routes. It remains to be seen if and when the industry can climb back to profitability with order books and US consumption still major overhangs. Nevertheless, the default cycle is expected to only peak roughly a year from when shipping markets hit bottom and we are still UNDERWEIGHT the shipping trust sector. 2010 could be an interesting year for the trusts as we believe they could get caught up in a broader de-rating of the alternative ship financing industry. Our US$0.23 fair value estimate for PST – kept unchanged – is pegged at a 30% discount to our discounted FCFE valuation of the trust (13% discount rate). Maintain HOLD.