Rickmers Maritime: Deadlocked by order book

Previous Day Closing price: $0.395
Recommendation: Hold (maintained)
Target price: $0.40

Rickmers Maritime (RMT) posted a 11.4% QoQ increase in 4Q08 revenue to US$29.6m. The results met our expectations except for a surprise US$3.5m non-cash provision for vessel impairment on Maersk Djibouti (about 5.5% of FY09F revenue). It is the trust's only vessel at risk for early lease termination, from February 2010 onwards, per its charter terms. As a result, net profit fell 25.7% QoQ to US$7.2m. RMT will pay out 2.25 US cents for the quarter, flat QoQ and up 5.1% YoY. This translates to an annualized yield of 34% and a distribution payout of 63%. The manager said that given current conditions, it would not provide any guidance on FY09 DPU.

RMT's gearing has increased from 1.1x debt-toequity at 30 September to 1.5x as at 31 December. In January, RMT took delivery of its 14th vessel, MOL Destiny for US$72m. Including the January vessel, RMT is contracted to acquire US$1.1b worth of containerships over the next two years. RMT has credit facilities in place to fund the FY09 vessels costing US$420m in all. If the FY09 buys are fully debt-funded, we estimate RMT's gearing will hit an unsustainable 2.7x on existing equity levels by year end.

Assuming the existing facilities are fully utilized, we estimate RMT would need to repay around US$17.9m of debt in FY09 and another US$157m in FY10. Additionally, RMT has yet to arrange funding for the US$711.6m vessels due in FY10. We believe the market value of those vessels would have taken a hit versus the asset cost pre-fixed by RMT. So even if lenders provide 100% loan-to-market value, it would not cover the cost of the vessel. The time for a fresh equity issue is fast approaching. An equity issue in FY09 itself is, in our opinion, necessary to strengthen RMT's negotiating position with lenders.

Source: OCBC, 10 Feb 2009