PST – UOBKH

2QFY08: DPU Should Continue Improving With New Vessels

2QFY08 DPU 12% higher than 1QFY08’s. Pacific Shipping Trust (PST) reported a net profit of US$8.3m for 2QFY08 (1QFY08: US$0.5m, 2QFY07: US$5.5m). Excluding gains/losses on interest rate swaps of US$3.8m, net profit would have been US$5.2m (1QFY08: US$4.5m, 2QFY07: US$3.2m). Net profit should continue to improve due to the impact of new ships. Distributable income for 2QFY08 was US$3.6m (1QFY08: S$3.3m, 2QFY07: US$3.6m). The increase in distributable income was due to a fullquarter contribution from Kota Nabil and the maiden contribution from Kota Naga which was delivered at end-May 08. Both vessels are chartered to PST’s sponsor Pacific International Lines. Two 4,250 TEU vessels, CSAV Laja and CSAV Lauca, will be delivered in 2HFY08.

Net profit forecasts revised up, but distributable income forecasts maintained. Our earnings forecasts do not take into account gains/losses on interest rate swap contracts. These gains/losses are non-cash items and fluctuate from quarter to quarter depending on interest rate movements. They have no impact on PST’s distributable profit and cash. However, we raise our net profit forecasts for FY08, FY09 and FY10 by 17-22% to US$16.4m, US$21.7m and US$23.3m respectively on lower-than-expected depreciation as PST’s ships are now depreciated over 30 years instead of 25 years. Our distributable income forecasts remain at US$15.7m, US$22.1m and US$23.1m for FY08, FY09 and FY10 respectively. PST has declared a DPU of 1.09 US cent for 2QFY08, 12% higher than 1QFY08’s 0.97 US cent.

Maintain BUY and target price. Delivery of the four new containerships in FY08 will expand PST’s portfolio of vessels by 50% to 12 from its initial fleet of eight ships. The four new vessels are expected to raise PST’s total contracted revenue p.a. by 79% to US$61.9m. We maintain our target price of US$0.50 for PST, based on a fair value FY09 net yield of 9.5%. PST offers an annual net yield of 11-12%. Maintain BUY.