Category: PST
PST – DBS
Steadily improving outlook
• 4Q09 DPU payout of 0.83UScts as per expectations
• 70% DPU payout ratio in line with strategy to conserve cash for acquisitions
• Key customer CSAV concludes 2nd round of equity fund raising, credit ratings show improvement
• Raising FY10 DPU estimates by 15%, upgrade to HOLD; TP raised to US$0.30
Operations stable. PST announced a DPU of 0.83UScts for 4Q09, very much in line with our expectations. All key numbers – revenue, operating profit and net profit – were largely unchanged on a sequential basis. Distributable income of US$4.9m (up 1% q-o-q) amounted to roughly 70% of the net cash generated – unchanged from 3Q09, and is in line with management’s strategy of conserving cash with a view of acquiring new vessels at attractive valuations.
Outlook on the CSAV front looks better. CSAV recently concluded a second round of equity raising worth US$290m, paving the way for the 3rd round of capital injection (US$360m) from German ship owners – by way of charter rate cuts – which was conditional on the success of the first two rounds of fund-raising. Credit rating agency S&P, while reaffirming its “B-” credit rating for CSAV recently, removed CSAV from the CreditWatch list and noted that the company’s financial flexibility had improved. S&P also maintained its “BB-” rating for PIL in its last update.
Upgrade to HOLD. Currently, our FY10 numbers assume a 30% cut in charter rates for the CSAV vessels, but we believe the probability of such a cut may be lower now, given the improving industry fundamentals in general and CSAV’s balance sheet in particular, and the fact that PST’s 2 ships
could be well below CSAV’s radar for renegotiations. Thus, we now ascribe a 50% probability to the event of a rate cut, and raise our FY10 DPU estimate to 3.0UScts from 2.6UScts earlier. Our TP is likewise revised to US$0.30, pegged to 10% target yield, based on counterparty risk profile. Upgrade to
HOLD. A favourable resolution to the CSAV saga could be a key re-rating catalyst, as would be DPU accretive acquisitions.
PST – BT
CEO of PST Management resigns
PST Management (PSTM), the trustee-manager of Pacific Shipping Trust (PST), said that its chief executive officer and executive director Alvin Cheng has resigned with immediate effect yesterday.
Mr Cheng, whose surprise resignation took effect yesterday, left by mutual agreement with PSTM’s board and to pursue his personal aspirations, the trust-manager said.
The PSTM board, meanwhile, has initiated a search for a new CEO. To provide continuity, PSTM non-executive director Teo Choo Wee will act as CEO from today.
The resignation was a surprise as Mr Cheng had been in the job for barely over one-and-a-half years.
PSTM’s previous CEO Subhangshu Dutt held the position for about two years.
An industry source who had spoken to Mr Cheng about his resignation cited him as saying it was ‘complicated’.
Mr Teo, who has over seven years’ experience in the shipping industry, will be seconded from PST sponsor Pacific International Lines where he is currently the deputy general manager responsible for fleet management and the sale and purchase of ships.
On Mr Cheng’s resignation, PSTM chairman Benedict Kwek said: ‘Despite the difficult and challenging state of the shipping industry, as well as increasing pressures from charterers to reduce charter rates, PST continued to perform well under his leadership. The board appreciates the contributions Alvin has made to the success of the trust and we wish him all the best in his future endeavours.’
Mr Cheng on his part said that he ‘wished to thank the board of PSTM for their support and guidance during my tenor at PSTM’, adding that ‘it has been a valuable experience during this journey’.
Shipping Trusts – OCBC
3Q09 results recap
Results recap. All three shipping trusts reported 3Q results recently. FSL Trust (FSLT) results were in line with our expectations while Rickmers Maritime (RMT)’s were below as the trust did not accept delivery of the latest Hanjin newbuild vessel, which the sponsor will hold on to, while talks continue on challenges regarding the trust’s large debt load; a maturing loan facility; and a large committed order book. Pacific Shipping Trust (PST) results were above our estimates as we had factored in charter rate cuts to CSAV but negotiations on that front have yet to be resolved. All three trusts reported that their charterers have been making charter payments on time so far.
DPU visibility is limited. Only FSLT has given DPU guidance for 4Q09 (1.50 US cents, flat QoQ). In our opinion, the other two trusts are not in a position to give much forward guidance because of ongoing issues. In fact, we believe FSLT has relatively the most visibility on 12 months forward DPU. Counterparty risk – the risk of a charterer defaulting or renegotiation charter terms – remains the major concern for the sector and consequently a major threat to DPU. Still, FSLT has addressed the most immediate threat to distributions by securing loan-to-value (LTV) covenant waivers. On the other hand, the CSAV renegotiation continues to be an overhang on PST. Rate concessions would impact cash flows and potentially give just cause to its other charterer (its sponsor) for demanding similar concessions. Meanwhile, we believe it is more prudent to not expect further distributions from RMT, the most at-risk trust in our view, while negotiations with lenders and its sponsor continue to be unresolved.
Prefer FSLT. We maintain our UNDERWEIGHT rating on the sector. We believe the tide has yet to turn for the container industry, and believe investors should limit their exposure to leveraged asset owners in this space. FSLT [BUY, FV: S$0.72] is our preferred play for the shipping trust sector as it has addressed many of our concerns regarding its balance sheet and previously aggressive payout policy. We also like its diversified portfolio and the relative visibility of its yield. Proceeds from its recent placement have been earmarked for acquisitions, which could be made in the coming months. On the other extreme, we have a SELL rating on RMT [FV: S$0.16] driven by the complex challenges faced by the trust. In our opinion, a resolution here is: uncertain; likely to be time-consuming; and perhaps significantly dilutive to unitholders.
PST – OCBC
Lowers DPU payout; no forward guidance
Payout down to 70%. Pacific Shipping Trust (PST) posted a 39% YoY increase in gross revenue to US$15.6m and a 30% YoY increase in distributed income to US$4.8m. The gains were due to contributions from the two CSAV vessels acquired in 2008. On a QoQ basis, revenue rose 1.1% and distributed income fell 17.4%. The trust will pay out 0.818 US cents per unit to investors. This is equivalent to 70% of income available for distribution (2Q: 88%) or 43% of cash earnings (2Q: 48%). PST outperformed our estimates for the quarter as we had already priced in rate concessions to charterer CSAV. But these discussions, which began in April, are still ongoing.
No forward DPU guidance. The Board did not give any forward guidance for DPU payout in 4Q09. The manager said it was not customary for PST to provide guidance, and last quarter’s guidance for 3Q09 was only given because of the sudden drop in payout from 90% to 70%. PST is describing the increased retention as a move to “equip [it] with the financial flexibility to seize value-accretive opportunities” in the next 12 to 18 months. Potential targets include the offshore or chemical tanker asset class. At the briefing, the manager said the Board will continue to review the necessity to retain cash based on market conditions and available opportunities. Our take of these actions is a little different: the shipping sector is still in fairly rough shape, and negotiations with CSAV continue. The increased retention, in our view, is PST’s attempt to build up a defensive war chest in case a negative outcome results. In fact, we don’t believe PST is in any position to consider acquisitions until it can resolve the CSAV issue.
Revising earnings estimates. We had previously assumed a 30% rate cut on the two CSAV vessels in effect from 3Q09. We are now stripping out this assumption in view of the uncertain quantum and timing of any rate concession. This does not mean we believe any action is less likely or less significant – if PST agrees to a renegotiation, it could open the floodgates. Its other charterer, sponsor Pacific International Lines, would be justified in also asking for concessions. We now price in the renegotiation risk in our valuation: valuing PST at a 30% discount to our discounted FCFE value for the trust (prev: 20%). We also assume the
70% payout level continues. Maintain HOLD with revised US$0.26 fair value (prev: US$0.27).
PST – BT
PST’s Q3 distributable income surges 60%
PACIFIC Shipping Trust (PST) achieved a 60 per cent surge in distributable income to US$6.9 million for the third quarter ended Sept 30, 2009, up from US$4.3 million a year ago.
This came on the back of a 39 per cent jump in gross revenue to US$15.6 million.
Distribution per unit (DPU) for the three months fell to 0.818 US cents from 1.0953 US cents due mainly to the implementation of PST’s revised distribution policy to encourage prudence amid the credit crunch, as well as an increase in the number of issued units. In absolute terms, the amount of US$4.8 million to be distributed is up 30 per cent year on year.
The jump in gross revenue was mainly contributed by charter hire from the vessels CSAV Laja and CSAV Lauca. In line with better revenue, net cash generated from operations grew 17 per cent to US$13.5 million.
Net profit more than doubled to US$7 million from US$3.2 million, partly as a result of the adoption of hedge accounting on Oct 1, 2008 and the repayment of loans from the proceeds of the preferential offering in Q3 FY2008.
‘With the improving global economic outlook, we envisage opportunities to enter into asset acquisitions. By increasing our cash balance through income retention, PST should be well-positioned to explore value-accretive expansion opportunities, while maintaining its prudent financial management strategy. This strategic growth plan will translate into sustainable rewards for our unitholders in the long term,’ said Alvin Cheng, CEO of PST trustee-manager PST Management (PSTM).
In the preceding quarter ended June 30, 2009, PSTM announced that it was revising distribution policy to strengthen its cash position in anticipation of favourable investment opportunities arising in the next 12 to 18 months, while indicating then that the distribution for this quarter would not be less than 70 per cent of PST’s available distributable income. Looking ahead, management will review its distribution policy depending on prevailing market conditions.
‘As a conservatively geared shipping trust with no immediate refinancing needs or pressing financial obligations, PST is building up its cash reserves to equip ourselves with the financial flexibility to seize value-accretive opportunities that we believe will emerge along with the gradual economic recovery,’ said Mr Cheng.
The books’ closure date is Oct 30 and payment will be made on Nov 26.