Category: PST
PST – BT
Pacific Shipping Trust sees 15% rise in fleet value
Independent broker values its portfolio of 8 ships at US$287m
PACIFIC Shipping Trust’s (PST) current portfolio of eight ships has been valued at US$287 million. This is 15 per cent higher than the book value and nearly 6 per cent higher than the total purchase price.
The valuation was done by Singapore-based independent broker Team Shipbrokers and was conducted on a charter-free basis. The eight vessels in Pacific’s current portfolio had a book value of US$249 million as at Dec 31, 2007, and their total purchase price was listed as US$271 million at the trust’s initial public offering in May 2006.
‘The rise in our asset values reflects the strong demand for quality container ships in 2007, when both new building and second-hand vessels were sold at record prices,’ said PST Management chief executive Subhangshu Dutt. ‘We hope this valuation dispels the concerns among some investors that ships only depreciate in value.
‘As trustee manager of PST, we are committed to maximising value for unitholders by providing a high, stable yield that comes from a diversified portfolio of quality, well maintained assets,’ he added.
PST will keep to its accounting policy of not revising the book values of its vessels.
PST also announced yesterday the launch of a new 1,800 TEU (twenty-foot equivalent) vessel. The US$43 million vessel is being built at China’s Dalian Shipbuilding Industry (Group) Co and is due for delivery at end-March.
The vessel will be Singapore-flagged and bareboat-chartered to PST sponsor Pacific International Lines (PIL) for eight years. In bareboat charters, the shipowner provides only the ship. The charterer has complete control over the management and operation of the vessel for an agreed leasing period and pays all operating costs including crew stores and bunker.
The Kota Nabil’s sister vessel, another 1,800 TEU container ship costing US$43 million, will be delivered to PST by end-May. These two ships are expected to raise the shipping trust’s total contracted revenue per annum by 15.7 per cent to about US$61.9 million.
Last September, PST announced the acquisition of two 4,250 TEU ships from PIL which it will time-charter to leading South American liner shipping company CSAV. With the latest two new vessels, PST’s portfolio will expand by half from eight to 12 vessels by the end of the year.
‘The early delivery of this vessel will mean that our unit-holders will realise the yield accretion promptly,’ said Mr Dutt. And he assured unit-holders that ‘we are continually on the lookout for more acquisitions which are yield accretive and which can diversify our charterer base’.
Shipping Trusts – UOBKH
Compelling yield plays for 2008
With uncertainties over the impact of the US economic slowdown on the rest of the world, we advocate taking some position in high yield, defensive earnings stocks. We see value in Singapore shipping trusts, namely First Ship Lease Trust (FSLT), Pacific Shipping Trust (PST) and Rickmers Maritime (RMT). They offer earnings visibility and steady high distribution yields of between 10.2%-12.7%. All three Singapore shipping trusts also continue to trade at a discount to their RNAV and DCF valuations. As such we reiterate our OVERWEIGHT recommendation for the sector.
FSLT. Among the three shipping trusts, FSLT currently has the lowest debt-to equity ratio of 0.38x. The trust has a target long-term debt-to-equity ratio of 1x. As such, future ship acquisitions can be funded by low-cost debt, leading to high yield accretion to unitholders. In Nov 07, FSLT acquired two 47,000DWT product tankers for US$113m. This acquisition had a relatively high asset yield of approximately 12.5% and boosted FSLT’s expected FY08 DPU by 17% from 8.92 US cents to 10.43 US cents. Assuming FSLT’s remaining debt capacity (based on a maximum forecast FY08 debt-to-equity ratio of 1x) to be utilised for ship acquisitions at similar asset yield, the trust could potentially increase its DPU by an additional 3.34 US cents, implying a potential DPU yield of 16.8%. We maintain our BUY recommendation on FSLT with a target price of US$1.22 (S$1.76).
PST. Debt restructuring is PST trump card. Of the three trusts, PST has the most conservative debt repayment structure (straight-line over 10-12 years from IPO as compared to its initial fleet’s remaining economic lifespan of about 26 years). We do not discount the possibility of debt restructuring though PST’s management has no plan to do so currently. PST is currently trading at a FY08 DPU yield of 10.2%. We maintain our BUY recommendation on PST with a target price of US$0.50.
RMT. RMT’s share price fell by 18.9% in the last two months. We have discussed with management this unusual share price weakness that has been specific to RMT and not experienced by the other two shipping trusts. We attribute RMT’s recent share price weakness mainly to selling by some institutional shareholders to raise cash in times of uncertainty. For instance, one of RMT’s cornerstone investors, Fidelity Investments Management has decreased its shareholdings in RMT from 12.97% to 11.6% between early to late-Dec 07.
At RMT’s current share price, it is trading at a FY08 DCPU (distributable cash per unit) yield of 13.7%, the highest among the three shipping trusts and a FY08 DPU yield of 10.7%. Unlike the other two trusts, RMT has a more conservative stance of retaining 25% of its distributable cash for reinvestment whereas the other two trusts pay out 90-100% their distributable cash. RMT is also the most competitive among the shipping trusts in terms of trustee fees and this bodes well for long-term investors. We maintain our BUY recommendation on RMT with a target price of US$1.19 (S$1.72).
Shipping Trusts – UOBKH
Singapore Shipping Trusts
Last week we hosted a roadshow for Rickmers Maritime (RMT) in Singapore and Malaysia. One of the key points raised during the roadshow was whether part of RMT’s dividend yield of 9-10% p.a. was a return of investor capital. Management disagreed with this general perception as RMT is retaining 25% of distributable cash for reinvestment. This differs from First Ship Lease Trust (FSLT) and Pacific Shipping Trust’s (PST) which pay out 100% of distributable cash.
RMT’s management said if the trust were a closed-end fund with no further equity injection, its equity would be intact (and would remain the same as the equity at beginning of the trust) when its initial fleet expires at the end of its economic life, some 30 years hence. By retaining 25% of its distributable cash, RMT’s equity will self-sustaining and invested into new ships. The retention of part of its distributable cash flow will ensure the perpetuity of RMT. We believe at current price, RMT offers great value as investors are effectively investing in a perpetual entity that pays a high dividend yield of 9-10% p.a.
Meanwhile, the other two trusts, PST and FSLT are forging ahead with ship acquisitions. PST recently announced the acquisition of two 1,800 TEU containerships from its sponsor. Pacific International Lines (PIL). These ships will be chartered back to PIL on a bareboat basis for eight years. This acquisition will enlarge PST’s fleet by 16%. FSLT recently acquired two 47,496 dwt product tankers from the Groda Shipping & Transportation group and were concurrently leased back to the sellers on a bareboat basis for a base term of seven years.
We remain positive on Singapore shipping trusts and have included them among our top defensive stock picks for 2008. Their defensive earnings are underpinned by long-term ship charter contracts of fixed charter rates for 5-12 years. Shipping trusts offer net yields of 9-12% p.a. and potential upside from accretive ship acquisitions. Maintain BUY on RMT (Target: US$1.19/S$1.72), PST (Target: US$0.50) and FSLT (Target: US$1.22/S$1.76).
PST – UOBKH
PST (PST SP)
Share Price: US$0.41
Target Price: US$0.50
PST has announced that it is acquiring from its sponsor Pacific International Lines (PIL) two new 1,800 TEU container vessels at US$43m each. The acquisitions are pursuant to a right of first refusal agreement entered into between PST and PIL dated 25 April 2006 and will increase PST’s fleet by 16% from 22,364 TEUs to 25,964 TEUs. The new vessels are currently being built by Dalian Shipbuilding Industry Co. Simultaneously, PST has entered into bareboat charters with PIL. The charter hire per vessel has been agreed at a fixed rate of US$11,550 per day for eight years commencing from the date of completion of the acquisitions.
The vessels have been valued by Howe Robinson Marine Evaluations at US$43m, as at 23 Oct 07 on a charter-free basis. The vessels are scheduled to be delivered by Dalian Shipbuilding to PST in Mar 08 and May 08 respectively. PST expects the acquisitions to be accretive to PST’s distributable cash flow once they are delivered and in operation. The vessels will increase PST’s current aggregate contracted revenue by 15.7 % to approximately US$ 61.9m per annum. The acquisitions will also increase PST’s current contracted fleet from 10 to 12 vessels.
PST intends to fund the acquisitions wholly with debt finance although the final financing structure will be subject to further evaluation by the trustee manager. In determining the appropriate financing for PST in respect of the acquisitions, the Trustee-Manager will take into account amongst others prevailing market conditions and the relative costs of financing with a view to arriving at an efficient capital structure for PST. There will be no acquisition fee payable to the Trustee-Manager in connection with the acquisitions.
We estimate the two vessels will contribute a gross charter income of US$4.2m per vessel. Net of trustee fees, the operating profit before funding cost is US$4.0m per vessel. This translates into a net asset yield of 9.4% (operating profit before funding). Assuming cost of debt at 6%, the accretion to PST’s distributable cash flow before debt repayment is 3.4% or a total US$2.9m for both vessels. This represents an increase of 16% on our FY09 projected distributable cash of US$17.9m for PST. The actual impact on distributable cash flow will depend on the debt repayment structure. If PST were to adopt the same debt structure of as the other two shipping trusts, Rickmers Maritime and FSL Trust (i.e. a balloon or bullet repayment structure with no or minimal debt repayment in the vessels’ initial years), the acquisitions will be significantly accretive to distributable cash. Among the three shipping trusts, PST is already the most conservative in repayment of debt related to the initial shipping fleet. It is currently repaying its debt over 10-12 years from IPO against its initial fleet’s remaining useful lifespan of 26 years from IPO.
Maintain BUY and our target price of US$0.50. PST currently trades at a net dividend yield of 10.4%.
PST – UOBKH
The trump card: debt restructuring.
Setting into motion its target of US$200m worth of ship acquisitions p.a. We believe the re-rating of Singapore shipping trusts is contingent on accretive ship acquisitions. Pacific Shipping Trust (PST) has set a ship acquisition target of S$200m p.a. It rolled this into motion with the recent acquisition of two 4,250 TEU containerships from its sponsor, Pacific International Lines (PIL). These two ships are part of the 38, which PST has the Right of First Refusal to acquire from PIL. The acquisition will increase PST’s current fleet from eight to 10 vessels and raise its fleet capacity by 61% from 13,864 to 22,364 TEUs.
Acquisition is accretive. We estimate PST’s latest acquisition offers an asset yield of 10.5% and an IRR of 8.5%. Whether the acquisition is funded totally by debt at an approximate 6% cost of borrowing or by a mixture of debt and equity at WACC of 7%, the acquisition should be accretive to unitholders. As PST is repaying its debt, falling interest expense will also boost distributable cash and dividend yield, which we forecast will rise from 10.2% in 2007 to 12.6% by 2012.
Debt restructuring is PST’s trump card. PST has a conservative straightline debt repayment period of over 10-12 years from the time it was listed compared with its initial fleet’s remaining economic lifespan of about 26 years. Its debt repayment schedule is conservative compared with First Ship Lease Trust’s (FSLT) and Rickmers Maritime’s (RMT) and explains PST’s FY08 EBITDA yield (after interest expense before debt repayment) of 18.0% compared with FSLT’s 12.6% and RMT’s 11.1%. We do not discount the possibility of debt restructuring though PST’s management presently has no plans to do so. This would place PST on an equal footing with FSLT and RMT. The additional distributable cash flow arising from debt restructuring could be used for ship acquisitions or higher dividend payout.
Yield-based target price: US$0.50. We expect the dividend yields of Singapore shipping trusts to compress due to re-rating on the back of accretive acquisitions, similar to that experienced by their US peers. We expect PST to trade at a dividend yield of 8.5% by end-08 and 8.0% by end- 09. This translates into target prices of US$0.50 and US$0.53 respectively. PST’s current share price trades at a 35% discount to our DCF valuation of US$0.64/share and 0.86x P/RNAV.