Rickmers – DBSV

Accelerated loan repayments continue

At a Glance

• DPU payout for 1Q11 maintained at 0.60UScts; in line with our expectations

• Accelerated repayment of loans continue, with another US$12.6m repaid in 1Q11

• Unlikely to meet conditions for removal of DPU cap in near term, maintain HOLD with TP of S$0.37

Comment on Results

Stable cash flows in 4Q. RMT’s topline fell 3.5% y-o-y owing to the lower charter rate for the vessel Kathe C. Rickmers, which was fixed at only US$8,288 to CSAV for the first year up to March 2011. Currently, the rate has been revised up to US$23,888 as CSAV exercised the option to renew the lease by 1 more year amid an improving charter market. Distributable cash flows remained stable on a y-o-y basis at US$16.3m for 1Q11.

DPU stayed at 0.6UScts, loan repayments continued. As the Trust repaid about US$12.6m of borrowings in 1Q11 – ahead of scheduled repayment of about US$8m – distribution to unitholders remained steady at US$2.5m for 1Q11, translating to a DPU of 0.6UScts, at the upper end of the DPU cap imposed by lenders.

Outlook & Recommendation

DPU cap could stay for a while. The Trust will continue to accelerate its deleveraging program in FY11, and borrowings could reduce from US$669m at end-FY10 to about US$624m at end-FY11. However, during the 3-year waiver period, the Trust’s DPU cap would be in place as long as the Value-to-Loan ratio on the IPO facility and subsequent top-up facility (about US$416m of which are outstanding currently) are below the covenant limit of 133%. According to our estimates, the value of the 10 vessels, which forms the security for the above facilities, is unlikely to cross that barrier in the near term, even after accounting for the gradual decline in borrowing level. Thus, we maintain our HOLD call on the stock, and our TP remains unchanged at S$0.37, pegged to 8% FY11 target yield. As highlighted earlier, balance sheet remains the key focus for management and acquisition driven growth will have to wait.