Shipping Trusts – UOBKH

Share Prices of US Peers Rally 30-60% wow

US peers rallied 30-60% wow; CCFI rebounded 26% from trough. Share prices of Danaos Corporation (DAC US) and Seaspan Corporation (SSW US), US peers of the Singapore shipping trusts, soared 58% wow and 32% wow respectively. The China Containerized Freight Index (CCFI) has rebounded 26% from its recent trough of about 750-945.3. We have not yet seen an upturn in the share prices of Singapore-listed shipping trusts similar to the recent rally of their US peers.

Stock Recommendations

FSLT. FSLT recently raised S$42m via a private placement to fund acquisitions. Accretive acquisitions will boost its distributable cash. However, the trust may need to raise equity for its outstanding loan balance of US$400m due for bullet payment in 2012 and 2014, and this may lead to yield dilution. Thus, we maintain HOLD on FSLT but raise our fair price from S$0.62 to S$0.70 based on a higher container shipping sector
2010F P/B of 0.91x (previously 0.81x).

PST. We forecast PST’s 2009 and 2010 dividend yields at 11.7% and 9.3% respectively after adjusting for the reduction in the distribution payout ratio from 90% to 70%. The cash retained will be applied to finance acquisitions. Accretive acquisitions may drive a re-rating of the stock. Maintain BUY with a target price of US$0.37.

RMT. We reduce our fair price from S$0.76 to S$0.55 based on a lower 2010F P/B of 0.32x (previously 0.40x), a shade below US peer Danaos’ P/B of 0.54x, because RMT would have a similarly very high net gearing of 4.0x, This is assuming the availability of debt financing for the US$712m capex due in 2H10 relating to the purchase of four containerships to be chartered to Maersk. RMT also has a US$130m loan facility due in Apr 10. While our fair price for RMT is 43% above its current share price, we maintain our HOLD call.

RMT is trading at a very low FY09 P/B of 0.31x. Should the trust overcome its financial hurdles by refinancing the US$130m loan, and by securing funding for its newbuilds, we expect a re-rating. At this juncture, the management is still seeking solutions to its financial hurdles.