2Q08: Results within expectations; management raise quarterly distribution by 5% as promised

Rickmers Maritime (RMT) announced a 6.0% qoq increase in charter income to US$23.7m accounting for 23.4% of our FY08 forecast. Charter revenue less vessel operating expenses increased by 6.3% qoq to US$18.7m accounting for 23.9% of our FY08 forecast. Earnings for the period increased 9.7% qoq to 9.2%.

Distribution of 2.25 US cents declared for 2Q08. RMT has increased its DPU for the period by 5% to 2.25 US cents within our expectations and management’s guidance. Payment of distributions is scheduled for 29 Aug 2008 with books closure date set for 20 Aug 2008 (units trade ex-distribution on 18 Aug 2008).

Greater financing by debt going forward. RMT currently has another 12 vessels scheduled for delivery between now and 2011 which were originally intended to be funded by equity. However, given the current market conditions, RMT’s management has opted to utilise greater debt funding for its acquisitions. Previously, RMT had guided on a self imposed Debt/ Equity target of 1:1. Going forward however, they are guiding on increasing this to approximately 7:3 and have guided that they feel comfortable operating at 75:25.

Earnings forecasts lowered as we shift our model to greater debt financing: No change to DPU forecasts. Given this change in RMT’s financing, we have adjusted our earnings forecasts to account for a greater proportion of debt financing and less equity financing. As such, our earnings forecasts for FY08 and FY09 have been increased by 18.6% and 8.7% respectively. Our DPU forecasts remain however remain unchanged as we expect RMT to retain a greater portion of cash due to the amortising nature of its new loans.

Maintain BUY; target price unchanged at US$1.19 (S$1.61). We continue to like RMT given its vessels are chartered out on long-term fixed time charters, with an average duration of 8.5 years. Counter-party risk is low given that RMT’s existing clients are within the top 12 liner companies in the world which include Maersk Lines, CMA CGM, Italia Maritima, Hanjin Shipping and Mitsui O.S.K. Lines. RMT is trading at an attractive distribution yield of 10.8%. We reiterate our BUY recommendation on RMT, with a target price of US$1.19 (S$1.61).

Growth in an uncertain environment

RMT kicks off US$1.35bn acquisition spree. Rickmers Maritime (RMT) has kicked off a three-year acquisition spree costing US$1.35b, with the delivery of 4250-TEU containership MOL Dominance in early June. RMT will spend US$360m in total on the five Mitsui vessels coming in this year; US$276m on the four vessels slated for FY09; and US$711.6 on four megacontainerships worth US$711.6m to be delivered in FY10. RMT is geared at 0.77x debt-to-equity as at the end of 1Q08. On current equity levels of about US$400m, this implies a debt-to-equity of roughly 1.6x by end FY08, 2.3x by end FY09, and 4x by end FY10.

Gearing up in an uncertain credit environment. RMT plans to fund the contracted acquisitions using a combination of retained cash, debt and equity. RMT has already arranged for about US$627.5m in new credit facilities on top of about US$45m that remains unused from its IPO facility. We note that the terms of the new facilities are marginally more expensive at LIBOR 90-120 basis points versus the IPO facility costing LIBOR + 70- 90 basis points. The accelerated debt repayment schedule beginning in FY09 itself vis-à-vis the IPO facility is notable. Debt facilities for the US$711.6m vessels due in FY10 have not been arranged yet.

Equity injection inevitable by FY10. With the increased gearing and debt repayment schedule, RMT has no option but to inject new equity into the trust. However, the US$672.5m in unused facilities (before paying for MOL Dominance) give RMT some breathing space. We expect the trust to bypass the lackluster equity markets in 2H08 to get a higher price realization. However, an equity issue will be inevitable by FY10 in order to accommodate RMT’s debt repayment schedule and the US$771.6m vessels due in that year. We have phased in US$600m in new equity over FY09-11. This is a base case roadmap that will take RMT back to roughly 1x debt-to-equity levels by FY11, allowing it to pursue further growth opportunities. We conservatively assume the new equity is issued at current price levels of 80 US cents .

RMT’s aggressive growth plans are supported by its ability to run time charters with long term visibility. It has credit facilities in place that can cover its growth plans for FY08 and FY09. The only question is how far the market can recover to enable RMT to successfully issue new equity at a reasonable price. Maintain BUY with S$1.22 fair value.

DPU guidance raised

Story: RMT delivered 1Q08 results that were in line with our estimates. RMT also declared a DPU of 2.14 UScts (2.9 Scts). Separately, the EGM held yesterday approved RMT’s proposed acquisition of 13 vessels at a cost of US$1.3bn.

Point: RMT currently operates 10 vessels and has another 13 vessels slated for delivery from 19 May 2008 to 10 Sep 2010; raising its capacity by 220% from 40,910 TEUs to 131,560 TEUs. The charters are now locked in at average of 8.6 years and expire between 2014 to 2020.

Management indicated that debt financing would probably be utilized at least for the short term. Together with the US$45m of unutilized debt facilities, its new US$627.5m credit facility is sufficient to fund the US$636m capex for the nine vessels that will be delivered in FY08 and FY09. Against this backdrop, we expect RMT’s gearing to rise to 70% in FY09.

Taking a conservative stance, our forecast assumes that vessel deliveries for FY08 will be fully financed by debt, 50% of capex in FY09 and FY10 will be financed by debt and 50% via an equity fund raising exercise raising US$490m in total. With this, RMT’s gearing is estimated to stand at 56% in FY09.

Relevance: Management raised its DPU guidance from 2.14 UScts per quarter to 2.25 UScts from 2Q08 onwards. RMT is trading at attractive yields of 11% and 11.6% in FY08-09 and at a P/B of 0.8x.. For comparison, RMT’s closest comps in the US – Danaos and Seaspan – are offering lower yields of 7.1% and 7.5% on average for FY08-09 respectively and are trading at 2.4x P/B. Maintain Buy for RMT with an adjusted TP of S$1.55 pegged at a target return of 8.2%, the average that the US shipping trusts are trading at.

Rickmers Q1 earnings beat forecast by 54%

Unitholders okay acquisition of another contracted fleet of 13 ships

RICKMERS Maritime seems to be riding a huge swell forward as it yesterday announced another set of good results for the first quarter.

The shipping business trust posted a first-quarter revenue of US$22.33 million, 14 per cent higher than projected, while net profit came in at US$8.39 million, beating its forecast by 54 per cent. This is the fourth successive quarter that it has outperformed forecasts since its listing.

Rickmers attributed the good performance for the three months to March 31 to early delivery of newbuildings, lower cost of lubricant oil and smooth operation of the fleet. The trust was registered at the end of March last year and listed in May that same year.

With healthy cash flow from operating activities of US$16.93 million for the first quarter, Rickmers is able to keep its distribution policy of making regular quarterly distributions of 2.14 US cents per unit for this quarter. Total distribution comes up to US$9.07 million.

‘We are extremely happy to have exceeded projections for yet another quarter and believe that this further testifies to the hallmark of our business – its resilience and stability. In terms of strategy, we will continue to make accretive acquisitions and strategically manage our fleet in order to significantly grow our earnings,’ said the CEO of trustee-manager Rickmers Trust Management (RTM), Thomas Preben Hansen.

There is even more good news in store. Unitholders yesterday also approved the acquisition of an additional contracted fleet of 13 ships.

This will enable Rickmers to increase distributions by 5 per cent from 2.14 US cents to 2.25 US cents in the second quarter. The payout will be made in the third quarter and on an annualised basis unitholders will get a distribution payout of nine US cents.

Funding for the new vessels will comprise a combination of debt, equity and available cash reserves, RTM said.

The trust has adequate debt financing in place to fund at least the first six of the new vessels without raising any equity, and will be able to fund about 75 per cent of the US$1.35 billion purchase price with debt, if necessary.

Rickmers also recently secured US$627.5 million in new credit facilities. In addition, unitholders also approved a mandate allowing the trust to raise up to US$650 million of equity, representing about 50 per cent of the purchase price of the new vessels.

However, taking into account Rickmers Maritime’s adequate debt financing and excess cash flow from operations, the new equity requirement could amount to less than US$300 million.

Thus, the trust may consider a relatively small equity raising next year, with the majority of new equity to be issued for the acquisition taking place only in 2010 when the four largest vessels are due to be delivered, RTM said.

1Q08 Results better than expected, management to raise quarterly distribution from 2Q08 by 5%

Rickmers Maritime (RMT) announced a 13.6% qoq increase in charter income to US$22.3m, this was slightly better than expected, due to the early delivery of two vessels, the CMA CGM Jade and CMA CGM Onyx. Earnings for the period however, declined by 10.5% qoq to US$8.4m. This can be attributable mainly to the absence of negative goodwill on business combination (non-cash item) as well as higher transaction fees relating to the issue of new units as well as costs incurred for the upcoming acquisition of 13 containerships. Overall, results were better than expected.


Management to raise quarterly distribution from 2Q08 by 5% to 2.25 US cents. RMT will be increasing its distribution in 2Q08 by 5% to 2.25 US cents. This additional distribution will be funded by additional income from the new vessels which will join RMT’s fleet this year. This implies a full year payout of 8.89 US cents which implies an attractive distribution yield of 10.9% which is in line with our expectations.

Maintain BUY: Target price unchanged at US$1.19 (S$1.61). We continue to like RMT given its vessels are chartered out on long-term fixed time charters, with an average duration of seven years. RMT focuses on only the top liner companies in the world and its customers include Maersk Lines, CMA CGM, Italia Marittima, Hanjin Shipping and Mitsuit O.S.K. Lines. RMT is trading at an attractive distribution yield of 10.9%. We reiterate our BUY recommendation on RMT, with a target price of US$1.19 (S$1.61).