Rickmers – DBS

DPU guidance raised

Story: RMT delivered 1Q08 results that were in line with our estimates. RMT also declared a DPU of 2.14 UScts (2.9 Scts). Separately, the EGM held yesterday approved RMT’s proposed acquisition of 13 vessels at a cost of US$1.3bn.

Point: RMT currently operates 10 vessels and has another 13 vessels slated for delivery from 19 May 2008 to 10 Sep 2010; raising its capacity by 220% from 40,910 TEUs to 131,560 TEUs. The charters are now locked in at average of 8.6 years and expire between 2014 to 2020.

Management indicated that debt financing would probably be utilized at least for the short term. Together with the US$45m of unutilized debt facilities, its new US$627.5m credit facility is sufficient to fund the US$636m capex for the nine vessels that will be delivered in FY08 and FY09. Against this backdrop, we expect RMT’s gearing to rise to 70% in FY09.

Taking a conservative stance, our forecast assumes that vessel deliveries for FY08 will be fully financed by debt, 50% of capex in FY09 and FY10 will be financed by debt and 50% via an equity fund raising exercise raising US$490m in total. With this, RMT’s gearing is estimated to stand at 56% in FY09.

Relevance: Management raised its DPU guidance from 2.14 UScts per quarter to 2.25 UScts from 2Q08 onwards. RMT is trading at attractive yields of 11% and 11.6% in FY08-09 and at a P/B of 0.8x.. For comparison, RMT’s closest comps in the US – Danaos and Seaspan – are offering lower yields of 7.1% and 7.5% on average for FY08-09 respectively and are trading at 2.4x P/B. Maintain Buy for RMT with an adjusted TP of S$1.55 pegged at a target return of 8.2%, the average that the US shipping trusts are trading at.