Category: Rickmers
Shipping Trusts – UOBKH
Valuation Methodology Switched From DCF To P/B
Valuation method changed to P/B. We switch valuation methodology for the three Singapore-listed shipping trusts, namely First Ship Lease Trust (FSLT), Pacific Shipping Trust (PST) and Rickmers Maritime (RMT), from discounted cash flow to P/B, which is the common method for valuing shipping stocks.
Fair prices raised, but recommendations unchanged. We believe the P/B methodology will be more reflective of and responsive to the changing risk profile of the shipping trusts, as financing risks are reduced as and when the shipping trusts overcome their balance sheet hurdles on the back of easing of credit and a recovery in ship prices. The shipping sector (as proxied by container shipping stocks) typically trades at 0.5x P/B at a cyclical trough and 2.5-3.0x at a cyclical peak.
FSLT. We raise our fair price for FSLT from S$0.50 to S$0.64 based on 0.8x 2010 P/B of the container shipping sector because FSLT’s net gearing of 138% is quite comparable with the sector’s gearing of 143%. FSLT remains a HOLD.
RMT. We also increase RMT’s fair price from S$0.44 to S$0.76 based on a lower 2010 P/B of 0.4x, a shade below US peer Danaos’ P/B of 0.5x, because RMT would have a similarly very high net gearing of 4.0x assuming debt financing for the US$700m capex due in 2010 relating to the purchase of four containerships to be chartered to Maersk. While our fair price for RMT is 24% above its current share price, we maintain our HOLD call in view of its unfunded US$700m capex due in 2010. We see a re-rating in RMT should it manage to resolve this financing hurdle.
PST. Unlike the other two shipping trusts, PST has no loan-to-value covenants with its bankers. Its net gearing ratio of 1.0x is the lowest among the three trusts. We reiterate BUY on PST with a revised target price of US$0.37 (previously US$0.22) based on 2010 P/B of 0.9x, higher than the P/B ascribed to the other two shipping trusts given its stronger financial position.
Shipping Trusts – DBS
Concerns easing selectively
• Stability in container shipping rates should spark renewed interest in shipping trusts
• FSLT – given that it has no imminent refinancing or counterparty issues – is best positioned
• German ship-owners rescue CSAV, PST may breathe easier
• Too many uncertainties still for Rickmers
Liner companies looking to push rate hikes. Most of the leading container carriers, including Maersk and NOL are now looking to arrest the free fall in container freight rates through coordinated rate increases. While the problem of lower trade volumes, idle capacity and a huge orderbook will still need some solving, we may be seeing some stability in rates for the rest of 2009. This, combined with the improving sentiment about a global economic recovery in 2H09, should spur renewed confidence in container shipping stocks, and consequently, shipping trusts.
Visibility improving bit by bit. FSLT has a more diversified fleet than peers – with about 38% exposure to containers and 65% to tankers (oil, chemical, product). With the oil price in recovery mode, counterparty risk may be reduced. Moreover, FSLT has no big refinancing risks before 2012. Elsewhere, with the US$360m lifeline thrown to CSAV by German owners last week, PST’s fortunes may be looking up as well. However, RMT has to contend with unfunded capital commitments and an upcoming bullet loan repayment in FY10 and the picture still looks hazy.
FSLT is our top pick, upgrade to BUY. Given the healthy response to the 1Q09 dividend re-investment scheme, investors seem to be giving the thumbs up to FSLT’s attempt to align the interests of both short-term and long-term investors. As such, given the lack of nearterm concerns, we believe there is better visibility to FSLT’s dividend payouts, despite trading at much higher yields of about 25%. Hence, we upgrade the stock to BUY, and our DDM-based TP is revised up to S$0.71.
Upgrade PST to HOLD. We are also upgrading our call on PST to HOLD with a revised TP of US$0.20, given that the worst that can happen now on its CSAV charters is a 35% rate cut. Elsewhere, we maintain our HOLD rating on RMT with a revised DDM-based TP of S$0.50.
Rickmers – BT
Rickmers to pay more for loan
Rickmers Trust Management Pte Ltd, trustee-manager of Rickmers Maritime, announced on Friday that one of its lending banks has continued to invoke the market disruption clause in one of its loans.
Consequently, a higher rate of interest will be levied on the loan, which will result in an increase in interest cost of approximately US$37,500 for the current fixing period ending August 28, 2009.
This increase in interest cost will not have a significant impact on Rickmers Maritime’s earnings per unit for the financial year ending Dec 31, 2009, it said.
Rickmers – BT
Rickmers sees higher Q2 income
* Expects higher distributable income in Q2 on new vessels
* 3 more ships due ’09, funding not secured for next yr ships
* Sees gradual recovery of container freight rates by Q3
Singapore-listed Rickmers Maritime expects increased distributable income in its second quarter on the back of new vessels, with another three due later this year when it sees a gradual recovery in freight rates.
Charter rates have likely bottomed, and there might be a gradual upwards correction in container freight rates by the third quarter, a traditional peak season for container shipping, the CEO of the shipping trust told Reuters on Monday.
‘We took delivery of a few ships in the early part of Q2, which we didn’t have in Q1, so that should affect the numbers accordingly,’ Thomas Preben Hansen, CEO of Rickmers Trust Management, said in an interview. ‘As we add ships to our portfolio, our revenue increases and our distributable cash flow should increase accordingly,’ he added.
A triple whammy of weak consumer demand, ship oversupply and the re-stocking of iron ore inventories at Chinese ports in the past 3-4 weeks have kept shipping rates under pressure.
Rickmers expects full contribution in the second quarter from two new ships delivered earlier this year, one leased to Korea’s Hanjin Shipping and the other to Japan’s Mitsui OSK Lines.
It has seven outstanding committed vessel buys, three vessels leased to Hanjin due later this year, and four vessels leased to AP Moller-Maersk due next year, but the funding for the latter has not been secured.
‘We’ve gone from an environment where there was an abundant amount of bank financing for shipping, to currently going through a period where the appetite for shipping financing has been reduced. But ship financing will return to the market,’ he said.
Rickmers and the other two Singapore-listed shipping trusts, Pacific Shipping Trust and First Ship Lease Trust, generally offer higher yields than Singapore-listed real estate investment trusts, because ships typically have a lifespan of 25-30 years.
Rickmers reported a 60 per cent increase in first quarter distributable income to US$19.6 million, on revenue of US$32.5 million. Its shares have risen 14 per cent so far this year, versus a 29 per cent gain in the broader Singapore index.
Rickmers – DBS
In the doldrums
At a Glance
• Lowered DPU payout to base distribution level of 2.14 UScts (down 5% qoq)
• No headway yet on financing for the four 13,100 TEU Maersk vessels due for delivery next year
• In talks with lenders for waiver of debt covenants
• Liquidity challenges next year with impending bullet loan repayment in April’10
• Maintain HOLD with a reduced TP of S$0.39
Profit stronger than expected. While revenue of US$32.5m (up 10% qoq) was in line with expectations, net profit surged 54% qoq to US$11m. This was largely on the back of lower-than-expected interest expenses and the lack of transaction fees. Distributable cash flows increased 8% qoq to US$16.8m. The DPU payout of 2.14UScts corresponds to only 54% of available cash.
But even existing credit facilities may shrink. With sharp contractions in asset prices, lenders may choose to restrict the amount to be drawn down from available facilities. This is on top of the Trust’s inability to secure funding for the US$711m of committed capex due next year. At worst, the Trust may have to sell the Maersk vessels (with charter) to a 3rd party at a sizeable haircut.
Are more DPU cuts on the way? The Trust would need to repay about US$158m of loans next year, including a US$130m tranche in April’10. The possible redelivery of the Maersk Djibouti in Feb’2010 implies added revenue pressure. The 5% cut in DPU may, thus, be no more than a signal, given the uncertainties. However, at current valuations, even a 50% cut in DPU going forward would imply a FY09 yield of more than 22%. We conservatively impute a 20% cut in DPU for the next 3 quarters. Maintain HOLD, TP cut to S$0.39.