Another stable quarter

At a Glance

• 2Q11 DPU remains steady at 0.809 UScts per unit, payout amounts to ~71% of distributable cash flow

• Expect DPU growth from 4Q11 onwards

• Dividend yield remains attractive at >9%; maintain BUY with higher TP of US$0.44 as we roll over valuations to blended FY11/12 numbers

Comment on Results

Good start to the year. 2Q11 revenue of US$15.4m and operating profit of US$9.3m remained steady on a y-o-y and q-o-q basis, as the existing fleet of 12 container ships continued to generate predictable income levels. Net profit was up 2.3% to US$6.8m, as interest expenses decreased 6.3% on the back of PST’s regular debt repayment schedule. Thus, net distributable cash (after loan amortisation) for 2Q11 came in slightly higher at US$6.7m vs. US$6.5m in 2Q10. The Trust paid out 71% of distributable cash, which amounted to US$4.8m or 0.809 UScts per unit in 2Q11, a 2% increase y-o-y and flat q-o-q.

Outlook & Recommendation

DPU growth expected from 4Q11. To recap, PST has announced 3 separate acquisition deals in FY10 to drive growth and diversification of the fleet – two new Capesize bulk carriers for delivery in Sep 2011, 2 Multi Purpose vessels for delivery in Sep/Dec 2012 and 5 Supramax bulk carriers for delivery in Nov 2012 – Apr 2013. With the delivery of the bulk carriers in 4Q11, we expect DPU to be stronger, and project overall 5% DPU growth in FY11, followed by 19% DPU growth in FY12.

PST remains our top pick in the shipping trust sector. The Trust has secured a total of US$282m in bilateral financing commitments from six banks to finance the above deals, which implies a high debt-to-value ratio of close to 85% and signals the faith of lenders in PST’s ability to sustain cash flows. We remain positive on PST’s growth and capital management strategies and maintain our BUY call with a higher TP of US$0.44 as we roll over our valuations to blended FY11/12 numbers.

Pacific Shipping Trust DPU for Q2 up 2%

Trust’s distributable income also inched up 2% at US$4.8m

PACIFIC Shipping Trust (PST) declared a distribution per unit (DPU) of 0.809 US cent for its second quarter, a 2 per cent increase year on year.

The DPU translates to an annualised yield of 8.9 per cent for the quarter ended June 30, 2011, up from 8.8 per cent from the same period the year before.

The shipping trust’s distributable income also inched up 2 per cent, from US$4.7 million to US$4.8 million.

Gross revenue from its existing fleet of 12 container ships grew by one per cent, from US$15.1 million to US$15.4 million for the quarter. During the same period, net profit grew 2 per cent to US$6.8 million.

The trust’s first-quarter performance mirrored that of its second quarters. For the first half of 2011, distributable income rose 2 per cent to US$9.5 million on the back of gross revenue that was flat at US$30.5 million. Its DPU for the first two quarters of the year stood at 1.618 US cents, a 2 per cent increase year on year, with an annualised distribution yield of 8.9 per cent.

Net profit for the half-year gained 3 per cent to US$13.7 million.

PST’s trustee-manager, PST Management (PSTM), attributed the growth in revenue to fewer off-hire days in for its time-chartered vessels, CSAV Laja and CSAV Lauca.

It will also take delivery of two 180,000 deadweight tonne capesize bulk carriers in September, which it says will boost gross revenue and net profit.

The capesizes, which will be on a 10-year time charter to China’s Jiangsu Shagang Group Co Ltd, will bring in US$196 million, the trustee-manager said.

The trust also has five supramax bulk carriers scheduled for delivery from October 2012 to April 2013. Lim Sim Keat, the chief executive officer of PSTM, remained confident of the vessels’ charter prospects despite the downturn being experienced by the dry bulk sector, as time charters have already been lined up for the vessels.

‘Our five supramaxes will be on on eight-to-10-year charters with the logistics arm of Hyundai Motor Group,’ said Mr Lim.

Another two multipurpose vessels – one slated for delivery in September 2012 and the other in December 2012, will be on 10-year charters to Cosco Xiamen, he added.

Steady as she goes!

At a Glance

• 1Q11 distribution remained steady at 0.81 UScts per unit or ~71% of distributable cash flow

• Financing for all newbuild vessels arranged

• Expect DPU growth from 4Q11 onwards

• Maintain BUY at unchanged TP of US$0.40

Comment on Results

Good start to the year. Revenue and operating profit came in virtually unchanged on a y-o-y basis, but net profit improved 4% to US$6.9m owing to the lower interest costs as PST continued to pay down its debt steadily. Subsequently, net distributable cash (after loan amortisation) for 1Q11 came in slightly higher at US$6.7m vs. US$6.5m in 1Q10. The 70% payout ratio was maintained, and the Trust paid out US$4.8m or 0.81UScts per unit in 1Q11, a 2% increase y-o-y.

Outlook & Recommendation

Debt financing for all new vessels has been secured. To recap, PST has announced 3 separate acquisition deals in FY10 to drive growth and diversification of the fleet – two new Capesize bulk carriers for delivery in Sep 2011, 2 Multi Purpose vessels for delivery in Sep/Dec 2012 and 5 Supramax bulk carriers for delivery in Nov 2012 – Apr 2013. While the total capital commitments for the 3 deals amount to about US$333m over the next 2 years, the Trust has already secured a total of US$282m in bilateral financing commitments from six banks to finance the deals, which implies a high debt-to-value ratio of close to 85% and signals the faith of lenders in PST’s capital management and business strategy.

Growth expected from 4Q11. We remain positive on these yield accretive acquisitions and expect DPU growth at near 12% CAGR over FY10-12, even after accounting for a potential equity issue of US$40-50m in FY12. Maintain BUY with an unchanged TP of US$0.40. PST remains our top pick in the shipping trust sector.

PST’s DPU rises 2% to 0.809 US cent in Q1

Annualised yield at 8.7%; distributable income at US$4.8m

PACIFIC Shipping Trust’s (PST) first-quarter distribution per unit (DPU) inched up 2 per cent to 0.809 US cent from 0.793 US cent a year ago.

The DPU for the three months ended March 31, 2011, represents an annualised yield of 8.7 per cent, up from 8.6 per cent the year before.

Distributable income for the shipping trust rose 2 per cent year on year to US$4.8 million from US$4.7 million.

Gross revenue from PST’s fleet of 12 box-ships was flat at US$15.2 million. Net profit for the trust’s first quarter was US$6.9 million, up by 4 per cent from US$6.7 million the previous year.

PST’s trustee-manager, PST Management, said the slightly higher net profit was due to lower interest costs and no off-hire days for vessel repairs over the quarter.

While the numbers look dowdy, PST Management’s newly appointed CEO Lim Sim Keat said that in September 2011, income and profitability will get a fillip when two newbuild 180,000 deadweight ton capesize bulk carriers are delivered.

They will then start a 10-year time charter to Jiangsu Shagang Group, at a rate of US$27,000 per vessel per day.

In the past year, PST has made strides into diversifying its fleet from just purely container ships.

Since June 2010, PST has embarked on a diversification drive and bought two multi-purpose vessels and seven bulk carriers.

Bringing tidings of stronger ship financing, PST also announced it secured two loans – both high in loan-to-value ratios of above 80 per cent – to fund their purchases.

Its most recent was in March, for a US$132 million loan from Standard Chartered, OCBC Bank and ING to pay 86 per cent of the contracted price for five Supramax bulk carriers.

When asked if the company will pursue a debt-financed rather than equity-financed route, PST Management’s CFO Shaldine Wong said: ‘We are currently at a 1:1 debt-equity ratio with the ships currently in the construction phase and are all funded by debt. Moving forward, when the time is right, we will consider an equity raise which will average out this proportion.’

PST’s acquisition streak in the past year has also been entirely newbuilds, due to attractive asset prices relative to charter rates.

However, Mr Lim says that PST will not rule out acquiring second-hand vessels. He said: ‘If second-hand prices drop and if we are able to secure attractive charters, we will consider them. It will depend on the counterparty, and rates.’

PST’s shares closed half a US cent up at 37 US cents yesterday.

Look forward to DPU growth

At a Glance

• No surprises in 4Q DPU of 0.809 UScts; amounted to ~75% of distributable cash flow

• 3 rounds of acquisitions announced in FY10; we expect 11% DPU growth in FY11 and 14% in FY12

• Maintain BUY for 10% yield and 8% upside to higher TP of US$0.40

Comment on Results

Revenue and operating profit in 4Q10 came in 2% q-o-q and 8% y-o-y lower, owing to more off-hire days arising from repairs to the 2 time-chartered vessels. Net cash generated for 4Q10 came in at US$6.4m vs. US$7.0m in 3Q10 due to the expenses related to the abovementioned technical repairs. However, 4Q10 DPU of 0.809 UScts remained largely stable as the Board decided to retain less cash and distribute 75% of distributable income, higher than the 70% payout in preceding quarters.

Outlook & Recommendation

During FY10, PST announced 3 separate acquisition deals to drive growth and diversification of the fleet – two new Capesize bulk carriers for delivery in Sep 2011, 2 MPP vessels for delivery in Sep/Dec 2012 and 5 Supramax bulk carriers for delivery in Nov 2012 – Apr 2013. While pre-delivery payments will be met by residual cash and bridge loans from sponsor PIL, the Trust has already secured about US$150m debt financing for the first two deals at surprisingly high loan-to-value ratios in excess of 80%. Net gearing as at end-FY10 increased to ~1.0x and could hit 1.2x by end-FY11 but we believe an equity issue may be in the offing by FY12.

We remain positive on these yield accretive acquisitions and expect DPU growth of 11-14% in FY11-12, even after accounting for a potential equity issue of US$40-50m in FY12. We like PST for its strong balance sheet and capital structure to take advantage of the opportunities in the shipping cycle and acquire assets at lower capital values with potentially higher asset yields. Our TP is slightly revised to US$0.40 as we adjust our payout ratio assumptions. Maintain BUY for 10% yield and price upside of about 8%.