Rickmers Maritime - Exit from waiver period not in sight (DBSVickers)

HOLD S$0.41

Price Target : S$ 0.37

At a Glance

• DPU payout for 2Q11 maintained at 0.60UScts as accelerated repayment of loans continues

• Covenant waiver period likely to continue as container shipping fundamentals weaken, further raised uncertainty in future asset values

• Maintain HOLD with TP of S$0.37 as DPU cap stays

Comment on Results

Cash flows up slightly in 2Q11. RMT recorded revenues of US$37.6m in 2Q11, 3% higher y-o-y, owing to the higher charter rate received from employment of vessel Kaethe C. Rickmers, which is now fixed at US$23,888 per day compared to US$8,288 per day in 2Q10. This also resulted in a write-back of vessel impairment of US$2.9m for Kaethe C. Rickmers, but was more than offset by an impairment of goodwill charge of US$4.1m on another vessel as internal WACC for impairment check was raised from 7.28% to 7.52%. These items are, however, non-cash in nature and distributable cash flows increased 8% q-o-q to US$17.5m.

DPU stays at 0.6SUScts, loan repayments continue. The Trust repaid about US$11.2m of borrowings in 2Q11 – ahead of scheduled repayment of about US$8m – and distribution to unitholders remained steady at US$2.5m for 1Q11, translating to a DPU of 0.6UScts, at the upper end of the DPU cap imposed by lenders.

Outlook & Recommendation

DPU cap could stay for a while. The Trust will continue to use its cash reserves of about US$50m to pay down debts in excess of scheduled repayments in 2H11. However, the Trust’s DPU cap is likely to be in place as long as the Value-to-Loan ratio on the IPO facility and subsequent top-up facility (about US$411m of which is outstanding currently) is below the covenant limit of 133%. According to our estimates, the market value of the 10 vessels which are encumbered could be around US$480m currently, which implies a coverage ratio of only 117%. And with container shipping likely heading towards a potential down cycle, asset values could come under further stress. Thus, we maintain our HOLD call on the stock, and our TP remains unchanged at S$0.37.