Share price: SGD0.285
Renewed interest in the shipping sector. The recent rally in shipping counters has piqued interest in the shipping industry. However, we are hesitant to call a bottom yet as we question the sustainability of this recovery. Hence, we hosted Mr. Thomas Preben Hansen and Mr. Gerard Low from Rickmers Trust Management, Trustee-Manager of Rickmers Maritime (RMT) on a one day road show, where they introduced their Trust and shared valuable insights on latest industry trends.
RMT currently offers a yield of c.10%. RMT is a leveraged play to a cyclical recovery in the container shipping sector, in our view. The stock offers an attractive yield of c.10%, assuming its DPU of USD0.024 a year is maintained. We believe that upside catalyst for the stock would be a significant recovery of the depressed time charter rates for the 3,450-4,250 categories of container vessels. We do not have a rating on RMT.
Mixed outlook for the Trust. Due to the long term, fixed rate contracts, RMT’s revenue had remained stable over the past few years despite the highly volatile industry charter rates. While RMT’s gearing ratio had improved significantly following a recently completed Rights Issue, a recovery in charter rates over 2014/5 remains critical as a significant number of vessel charters will expire over that period of time. If forecasts by Maersk Broker for a significant recovery in charter rates (see Figure 4) materialize, we expect RMT to be a beneficiary.
With improved order to fleet ratio, industry supply overhang could ease in the future. While demand for container shipping remains weak, supply overhang could ease in the future as the sector’s order to fleet ratio is significantly below levels reached prior to the global financial crisis. While dry bulk carriers are driven by commodities trade, the container shipping industry is mainly exposed to consumer markets and investors should watch consumer trends as an indicator of sector health. With oil prices remaining high, fuel efficiency of vessels is increasingly important and vessels that are unable to slow steam will struggle to stay relevant in the future.
Background of Rickmers Maritime. RMT is one of two shipping trusts listed on the SGX. Unlike its closest peer, First Ship Lease Trust (FSLT) that has a mix of bulkers, containerships and tankers, RMT is a pure play to the container shipping market. RMT owns and operates a portfolio of 16 containerships under long term fixed rate time charters to liner companies. The vessels in its portfolio are relatively young with average age of 5.8 years and average remaining charter period of 2.7 years. RMT’s management fee structure does not include acquisition and disposal fees, but have incentive fee that will be based on incremental distribution above certain target.
Publish date: 30/09/13