Previous Day Closing price: $0.40 (STI: 1,682.34)
Recommendation: Hold (maintained)
Price Target : 12-Month S$ 0.40 (Prev S$ 0.63)
Rickmers Maritime did not surprise and maintained its quarterly DPU payout of 2.25 UScts, in line with steady operating performance. We believe the payout can be sustained in FY09. However, RMT still needs to find a solution to its committed FY10 capex needs of US$711m. In addition, near term refinancing needs include a US$130m bullet repayment due in 1H10. With spot charter rates currently hovering around 50-60% below contracted long term charter rates, the risk of renegotiations cannot be ruled out either. Hence, we maintain HOLD at a reduced target price of S$0.40.
In a prudent move, RMT took a US$3.5m impairment charge on the Maersk Djibouti vessel to account for the risk that Maersk may exercise the early termination option by Feb’10. No other vessel has this clause, however.
Data from Clarksons Research indicates that newbuilding prices for similar vessels as those on RMT’s orderbook may have fallen 10-12%. We estimate one of the loan tranches, a US$288m facility financing the 5 Mitsui ships, may be at risk of technical default.
RMT will add 5 vessels to its portfolio this year, fully financed by existing credit lines. This should ensure enough cash flows in FY09 for RMT to maintain the 2.25 UScts quarterly payout, even while conserving cash. However, with financing uncertainties looming, dividend visibility may be clouded beyond that. In our forecast numbers alongside, we assume a 60% debt-funded potentially dilutive acquisition scenario. But our target price of S$0.40 is derived as the average of fair values under 3 probable scenarios – I) as described above, ii) non-realization of above acquisition and cash flows accruing only from portfolio as of end-FY09 and iii) inability to conclude near-term refinancing deals.
Source: DBS, 10 Feb 2009
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