Category: PST
PST – CNA
PST Q3 DPU fell 25% to 0.818 US cents
Pacific Shipping Trust (PST) said its distribution per unit (DPU) for the third quarter fell around 25 percent to 0.818 US cent from a year ago.
It said the lower DPU is mainly due to its revised distribution policy as well as a rise in the number of units issued.
PST announced in the previous quarter that it would revise its distribution policy to strengthen its cash position. Under the revised policy, PST would only distribute 70 per cent of its available distributable income.
PST said its distributable income for the three months ended September rose 30 per cent to US$4.8 million, from a year ago.
This was on the back of a 120 per cent surge in net profit to US$7 million, partly due to the adoption of hedge accounting and the repayment of loans.
Looking ahead, CEO of PST’s manager, Alvin Cheng said PST is not overly optimistic that the shipping sector will recover rapidly over the next year.
He said: “But certainly we see that the market probably have stabilised because of the over supply of tonnages due to come in during the next year. We see that vessel prices will continue to stay low compared to the previous high. But as the world economy begins to take an upturn, we see that the demand for shipping capacity will slowly improve.”
Mr Cheng added that PST will actively explore various avenues to diversify its vessel portfolio and expand its base of credit-worthy charterers.
With the improving global economic outlook Mr Cheng said the trust sees opportunities to enter into asset acquisitions.
Shipping Trusts – OCBC
3Q results preview
3Q results preview. We expect FSL Trust and Pacific Shipping Trust to release 3Q09 results next week, with Rickmers Maritime following later in the season. We will be tracking: 1) performance of the trusts’ charters; 2) balance sheet factors including loan-to-market-value levels and repayment schedules; and 3) how this translates to forward strategy and DPU guidance. Maintain UNDERWEIGHT on the sector as we believe the unwinding of this leveraged play structure is still playing out. The shipping industry is still hurting and counterparty risk and aggressive leverage remains a key concern. FSL Trust [BUY, S$0.72 fair value] is our preferred pick for its diversified vessel portfolio.
FSL Trust (FSLT). In September, FSLT secured loan-to-value (LTV) covenant waivers and raised equity through a placement. As such, we expect 3Q results to be fairly uneventful relative to the other two trusts. FSLT is the only trust to have given clear guidance for 3Q09 payout: 1.5 US cents is guided for pre-placement unitholders (1.27 US cents already paid out). We expect the trust to meet its guidance. The placement proceeds are earmarked for acquisitions but it may be too soon to expect concrete news on this front.
Pacific Shipping Trust (PST). Rate renegotiation discussions with customer CSAV are now in their sixth month with no resolution achieved so far. 3Q09 revenue will likely outperform our expectations as we had priced in a rate cut from 2H09 onwards. Our view is that it is only a matter of time before some flavor of rate concession is granted. Meanwhile, PST’s Board is reconsidering its payout strategy and has only said that 3Q09 payout will be no less than 70% of distributable income. This may be a significant quarter as the Board spells out its forward payout and growth strategy. PST has already outlined its ambitions to grow, but any serious attempt would require fresh equity, in our opinion.
Rickmers Maritime (RMT). RMT paid out 0.6 US cents DPU in 2Q09, and its circumstances are unchanged. We don’t expect any immediate resolutions to its challenges including LTV covenant breach concerns, maturing loans, and an outstanding order book. We do not believe there is scope for DPU increase till these issues are resolved and believe it more prudent to not price in any payout. While fresh equity may be eventually necessary, loan covenant concerns create a chicken and egg situation. Like FSLT, RMT may need to secure (at least conditional) LTV waivers before it can attempt to raise equity.
Shipping Trusts – UOBKH
Share Prices of US Peers Rally 30-60% wow
US peers rallied 30-60% wow; CCFI rebounded 26% from trough. Share prices of Danaos Corporation (DAC US) and Seaspan Corporation (SSW US), US peers of the Singapore shipping trusts, soared 58% wow and 32% wow respectively. The China Containerized Freight Index (CCFI) has rebounded 26% from its recent trough of about 750-945.3. We have not yet seen an upturn in the share prices of Singapore-listed shipping trusts similar to the recent rally of their US peers.
Stock Recommendations
FSLT. FSLT recently raised S$42m via a private placement to fund acquisitions. Accretive acquisitions will boost its distributable cash. However, the trust may need to raise equity for its outstanding loan balance of US$400m due for bullet payment in 2012 and 2014, and this may lead to yield dilution. Thus, we maintain HOLD on FSLT but raise our fair price from S$0.62 to S$0.70 based on a higher container shipping sector
2010F P/B of 0.91x (previously 0.81x).
PST. We forecast PST’s 2009 and 2010 dividend yields at 11.7% and 9.3% respectively after adjusting for the reduction in the distribution payout ratio from 90% to 70%. The cash retained will be applied to finance acquisitions. Accretive acquisitions may drive a re-rating of the stock. Maintain BUY with a target price of US$0.37.
RMT. We reduce our fair price from S$0.76 to S$0.55 based on a lower 2010F P/B of 0.32x (previously 0.40x), a shade below US peer Danaos’ P/B of 0.54x, because RMT would have a similarly very high net gearing of 4.0x, This is assuming the availability of debt financing for the US$712m capex due in 2H10 relating to the purchase of four containerships to be chartered to Maersk. RMT also has a US$130m loan facility due in Apr 10. While our fair price for RMT is 43% above its current share price, we maintain our HOLD call.
RMT is trading at a very low FY09 P/B of 0.31x. Should the trust overcome its financial hurdles by refinancing the US$130m loan, and by securing funding for its newbuilds, we expect a re-rating. At this juncture, the management is still seeking solutions to its financial hurdles.
PST – UOBKH
Assessing PIL’s Financial Health
Pacific International Lines (Private) Limited (PIL), the parent, sponsor and major customer of Pacific Shipping Trust (PST), owns and operates a fleet of 104 vessels with total capacity of 186,994 TEU. PIL accounted for 70-80% of PST’s 2Q09 revenue.
Strong balance sheet to weather the current shipping downturn. PIL has just filed its 2008 accounts with the Registrar of Companies. End-08 net gearing was at a reasonable level of 32%, but its quick ratio of 0.9x was a tad low. Interest coverage ratio was healthy at 6.2x. Net gearing could rise to 60% with future capex of US$469.2m for 2009-2011.
Increase in debt due to consolidation of PST. PIL’s total group borrowings increased by 36% yoy to US$1.1b in 2008 primarily due to the consolidation of PST’s debt (as of end-08, PST’s total loans were US$230m). Following PST’s 3-for-4 rights issue in Sep 08 with PIL subscribed for 90% of the rights shares, PST changed from a 34.6%-owned associated company to a 59.2%-owned subsidiary of PIL.
Asset value to term loans at 1.5x. Of PIL’s US$1.1b debt, 40% is due in 2009 and the balance 60% due in 2010-2018. PIL’s US$746.5m was collaterised with assets with a net book value of US$1.14b (1.5x of the loans).
Maintain BUY on PST with target price of US$0.37. We forecast PST’s 2009 and 2010 dividend yield of 12.4% and 9.9% respectively after adjusting for the reduction in distribution payout ratio from 90% to 70%. The cash retained will be used to fund acquisitions. Accretive vessel acquisitions will likely drive a rerating of the stock. Our earnings forecasts have not imputed such acquisitions.
PST – BT
Distribution cut only a guidance: PST
Plan is to use additional funds for possible acquisitions
PACIFIC Shipping Trust (PST) became the latest to jump on the bandwagon as it warned last week in its second-quarter results release that it may cut distributions for the third quarter.
However, its management hastened to add in a post-results briefing that the possibility of a distribution per unit (DPU) cut from 90 per cent to 70 per cent of distributable income was only a guidance.
Even if there is a cut, PST’s plan is to use the additional funds for possible acquisitions rather than for debt reduction as, unlike peers in the shipping trust sector, it has virtually no short-term debt. It also does not have any newbuilds on order, putting it in a good position to take advantage of low prices to purchase assets for future expansion.
PST has been saying since earlier this year that it is taking its time to look for yield-accretive acquisitions at good valuations in the chemical tanker and offshore supply sectors to diversify its income base. CEO Alvin Cheng said at the briefing that he will be looking more closely at acquisitions and has a planning horizon of 12 to 24 months.
PST is focusing on small to medium size vessels in the US$20 million to US$25 million range as the trust does not believe in the viability of extremely large sizes, Mr Cheng added.
The anchor handling tug and supply vessel (AHTS) market in particular holds the possibility of good bargains, PST believes. It is known that many small and medium size AHTSs were built speculatively over the past year and could now be on the market at attractive prices as their owners face a credit squeeze under current conditions.
‘We see hope of recovery in the next six to 12 months and we will position ourselves to capture some of the opportunities,’ said Mr Cheng.
On the flip side, however, the acquisition trail may lead PST into deeper waters than it has projected. ‘While no guidance is given on whether the distribution policy will be maintained at 70 per cent going forward, we do not rule out the possibility that the trust may further reduce payout ratio should the need arise to fund acquisitions,’ said UOB-KayHian in a research report released on Monday.
‘That said, we view this positively as ship prices have fallen sharply from their peaks in 2008. Accretive acquisitions may drive a re-rating of the stock,’ UOB-KayHian added as it maintained its ‘buy’ rating with a target price of 37 US cents.
PST units closed half a US cent higher at 26.5 US cents yesterday.