PST – DBSV

DPU stable; first look at future growth

At a Glance

• PST’s 2Q10 results and distribution of 0.793UScts per unit in line with our expectations

• Existing cash flows look stable, management refocuses on growth plans with diversification into dry bulk sector

• Trading at about 11% FY10 yield, maintain our BUY call at TP of US$0.37 (9% target yield)

Comment on Results

DPU of 0.793UScts was declared for the quarter, which is similar to the 1Q10 payout. 2Q10 revenue of US$15.1m was steady on a sequential basis, and net profit held steady at US$6.6m. After regular loan amortisation of US$4.3m, net cash generated for 2Q10 amounted to US$6.5m – of which approximately US$4.7m will be distributed to unitholders and the remaining US$1.8m retained for future working capital purposes. This implies a payout ratio of about 72%, in line with existing conservative payout policy.

Outlook & Recommendation

As announced earlier, PST plans to acquire two new capesize bulk carriers for a consideration of US$61.6m each, for delivery in September 2011. The vessels come with a 10 -year long-term charter with Jiangsu Shangang Group of China, China’s largest private steel maker and we believe, a reputable counterparty. The 2 vessels represent about 28% of current book value and is PST’s first diversification away from the container sector. While the initial 15% deposit can be paid from existing cash reserves, the remaining 85% will have to be financed by a combination of debt and equity. Given the Trust is only likely to obtain 60% Loan-to-Value financing at best, that leaves a shortfall of around US$25-30m, which we believe could require another round of equity infusion next year.

Given that the new ships will be delivered in end-3Q of FY11, and financing will only be required around that point, we do not foresee any impact to FY10 DPU estimates. However, depending on the timing of equity issue and pricing, FY11 DPU may face some dilution. We are currently looking at about 5-7% DPU accretion in FY12, based on our assumptions. Maintain BUY and TP of US$0.37.