First Ship Lease Trust - Another good set of results

Good results as expected
First Ship Lease Trust (FSL) reported US$28.4m revenue for 3Q15, which is 3.1% higher QoQ and 20.1% higher YoY.

While net profit is significantly higher YoY, net profit is lower at US$2.8m QoQ (2Q15: US$6.2m) mainly due to
i) higher depreciation from the two Evergreen vessels as the residual value has changed,

ii) a decline in ‘other income’ from US$1m to S$0.5m and

iii) higher operating expenses incurred on voyages and tanker charters.

Acquisition of new MR tanker
FSL expects the delivery of a new ~46,000 DWT MR tanker in November, with an acquisition cost of US$21.8m and a cash‐on‐cash yield of 14.5%. This tanker may be kept in the spot market, until FSL finds a reasonable charter rate to lock in. While this increases the concentration of FSL’s porfolio to the tanker segment, we think that once the charter rate is firmed up, FSL would be one step closer to a potential dividend payout.

Expect a slightly weaker 4Q
We are projecting a slightly weaker 4Q due to temporary factors. The delivery of the MR requires management takeover costs and working capital, and 2 vessels are undergoing special surveys which incurs drydocking fees and result in reduced cashflow generation.

Struggling containership segment to have a contained impact
Yesterday, we saw a steep decline in Rickmers Maritime’s share price amidst a poor containership operating environment. FSL’s cashflows has been impacted due to a lower contribution from its 2 feeder containerships, and the scrap value of the Evergreen vessels may be at risk. Nevertheless, we think that the impact is contained as the 2 feeder containerships contribute only 2.6% of 3Q15 bareboat charter equivalent revenues while the decline in salvage value of the vessels will only have a one‐time impact on cashflows.

Technical Analysis
Daily Chart
Keeping our BUY on the potential for dividend payout
We keep our TP unchanged at S$0.260 based on revalued P/B of 1. We like FSL’s strong cashflow generation, which helps to pay down debt while rejuvenating its fleet. FSL is also exposed to the booming tanker segments, which is still seeing strong time charter rates. We keep FSL as a BUY, with further upsides in sight due to the potential to pay out dividends. (Read Report)

Source : KGI Fraser Research

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