PST – DBSV

Look forward to DPU growth

At a Glance

• No surprises in 4Q DPU of 0.809 UScts; amounted to ~75% of distributable cash flow

• 3 rounds of acquisitions announced in FY10; we expect 11% DPU growth in FY11 and 14% in FY12

• Maintain BUY for 10% yield and 8% upside to higher TP of US$0.40

Comment on Results

Revenue and operating profit in 4Q10 came in 2% q-o-q and 8% y-o-y lower, owing to more off-hire days arising from repairs to the 2 time-chartered vessels. Net cash generated for 4Q10 came in at US$6.4m vs. US$7.0m in 3Q10 due to the expenses related to the abovementioned technical repairs. However, 4Q10 DPU of 0.809 UScts remained largely stable as the Board decided to retain less cash and distribute 75% of distributable income, higher than the 70% payout in preceding quarters.

Outlook & Recommendation

During FY10, PST announced 3 separate acquisition deals to drive growth and diversification of the fleet – two new Capesize bulk carriers for delivery in Sep 2011, 2 MPP vessels for delivery in Sep/Dec 2012 and 5 Supramax bulk carriers for delivery in Nov 2012 – Apr 2013. While pre-delivery payments will be met by residual cash and bridge loans from sponsor PIL, the Trust has already secured about US$150m debt financing for the first two deals at surprisingly high loan-to-value ratios in excess of 80%. Net gearing as at end-FY10 increased to ~1.0x and could hit 1.2x by end-FY11 but we believe an equity issue may be in the offing by FY12.

We remain positive on these yield accretive acquisitions and expect DPU growth of 11-14% in FY11-12, even after accounting for a potential equity issue of US$40-50m in FY12. We like PST for its strong balance sheet and capital structure to take advantage of the opportunities in the shipping cycle and acquire assets at lower capital values with potentially higher asset yields. Our TP is slightly revised to US$0.40 as we adjust our payout ratio assumptions. Maintain BUY for 10% yield and price upside of about 8%.