PST – DBSV

Growth, diversification plans on track

At a Glance

• 3Q10 DPU of 0.83UScts in line with our expectations

• Existing cash flows look stable, diversification and growth plans remain on track with recent acquisition of 2 Multi Purpose Carriers for delivery in late 2012

• Trading at about 11% FY11 yield, maintain our BUY call at higher TP of US$0.39 (9% target yield on FY11 DPU)

Comment on Results

DPU of 0.83UScts was declared for the quarter, which is 5% higher than 2Q10 DPU but similar to the payout in 3Q09, when PST first started conserving 30% of distributable cash. 3Q10 revenue of US$15.6m held steady, and net profit was up 9% q-o-q to US$7.2m. After regular loan amortisation payment of US$4.3m, net cash generated for 3Q10 amounted to US$7.0m, of which approximately US$4.9m will be distributed to unitholders and the remaining US$2.1m retained for future working capital purposes.

Outlook & Recommendation

Following its earlier plans to acquire two new capesized bulk carriers for delivery in Sep 2011, PST has announced further growth plans and diversification into MPP vessels, with an order for 2 vessels worth US$60m for delivery in Sep/Dec 2012. The vessels will be chartered out for 10 years to COSCO Xiamen, a subsidiary of the COSCO Group. Pre-delivery payments for these ships will be supported by advances from sponsor PIL, and hence financing requirements will be back-loaded. To recap, the payment schedule for the bulk carriers are back-loaded as well, with 85% to be paid on delivery. Thus, while there is no immediate DPU accretion, there are no immediate funding needs as well.

Management is content to wait for better financing deals as they believe the market for ship financing is improving (it is possible to obtain more than 60% Loan-to-Value currently). Given the current cash buffer, we thus push back our equity fund raising assumptions to 2012, as we believe at least the bulk carrier deal can potentially be financed without raising additional equity. Maintain BUY, TP revised up to US$0.39, as we roll over valuations to FY11.