We had earlier flagged out the sustainability issue of RMT's dividends on 23 June in our morning meeting, and reiterated our analysis on the weak cash flow and challenging containership operating environment in our note on 14 Aug titled 'Is the current high-yield sustainable?'. We believe there is still significant downsides for RMT, while we can consider switching out to First Ship Lease Trust.
Rickmers Maritime (RMT) announced its 3Q15 results yesterday. Revenues were slightly lower than 2Q15 due to lower charter rates. In view of the challenging environment, management has slashed the 0.6c per quarter dividend. In our not-rated note ’Is the current high-yield sustainable?’ published on 14 August 2015, we think our analysis on the company remains valid with RMT still seeing weak cashflow in a poor containership operating environment.
Deteriorating operating environment
RMT will be renewing/extending 3 4,250 TEU vessels in November. While the timing was not surprising, this came as a shock as the rates will be recontracted at US$6200+, significantly lower than the previous rates of US$8492-US$13027. Management said that there are many ships looking for employment, and at rates of US$6200+ the vessels are contracted just above cash breakeven levels. If rates remain at such depressed levels amidst the oversupply of vessels, RMT could see very significant downside risks.
Bleak outlook ahead
RMT commented that the global container supply and demand was in acute imbalance, which resulted in the plunge in daily charter rates. Capacity growth is expected to increase by 7.1%, outpacing global container trade which is expected to grow by 3.7%. However, rates could bottom out if liner owners continue to reduce capacity.
Liquidity preservation is utmost importance to survival
In addition to the 3 vessels that were renewed/extended, contracts on 8 vessels will expire by end 2016. If these vessels would be similarly rechartered at rates of US$6200+, down from their previous rates of US$9381-US$25950, the reduced cashflow from operations would likely be lower than the debt repayment rate of ~US$12m per quarter. The existing cashpile of US$51.7m is of utmost importance to tide RMT through the difficult period.
With liner companies reporting poor results amidst a poor operating environment, we see further downsides to RMT. We note that RMT is still in breach of loan covenant, while US$243.9m of debt will mature over FY16-17. Comparatively, we reiterate our preference for First Ship Lease Trust (S$0.172; BUY; TP: S$0.26) as dividends may potentially resume while it is riding the booming tanker market. We look forward to FSL’s results after the market closes today. (Read Report)
Source : KGI Fraser Research