Professional Documents
Culture Documents
219
1 .5 0
1 .3 0
169
this case, the vessels were "arrested" by Daxin Petroleum, a
1 .1 0
119
Singapore-based bunker supplier, for non-payment of bunker
0 .9 0 fuel supplied to Groda. The amount outstanding is estimated to
0 .7 0 69 be about US$4.1m. FSLT's immediate focus will be on securing
0 .5 0
the release of the ships, by paying a security payment or "bail"
as such, so that the vessels can resume normal operations.
0 .3 0 19
2007 2008 2009 2010
F ir s t S h ip L e a s e T r u s t (L H S ) R e la t iv e S T I IN D E X (R H S )
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: JS / sa: JC
Company Focus
Two FSLT-owned vessels detained. Over the last week, First Too many uncertainties. S&P feels that FSLT's credit profile
Ship Lease has announced the "arrest" of two of its vessels, could come under pressure partly because of the uncertain
Nika 1 and Verona 1 at ports in China (Qingdao) and Japan, length of time of the vessel arrests and associated potential
(Shimotsu) respectively. In maritime parlance, "arrest" implies legal expenses. In addition, the arrest will make it difficult for
the detaining of the ships by the nearest maritime port the Russian government-controlled sub-charterer OJSC Oil
authorities, usually on the request of a creditor. In the case of Company, Rosneft, to use the arrested vessels for its long-
these ships, the vessels have been "arrested" by Daxin term contracts of affreightment (COAs) commitments.
Petroleum, a Singapore-based bunker supplier, for the non- Moreover, the situation is likely to make the re-delivery
payment of bunker fuel supplied to these vessels, which are process of the two vessels lengthier and more expensive,
currently on bareboat charter to affiliates of Groda Shipping. potentially complicating FSLT's access to the US$3m cash
The amount outstanding is estimated to be about US$4.1m. deposits originally made for each one of them.
What is still unknown is the legal intricacies, given that
jurisdictions of two separate countries are involved. More cash outflows probable. FSL management understands
that a total amount of US$4.8m will be required to be posted
These are the same ships on which the lessee, Groda as security to secure the release of the two ships, which is
Shipping defaulted about a month back. To recap, charterer somewhat higher than the underlying claim. Once the ships
Groda Shipping had redelivered these 2 product tankers in are released, litigation will proceed to settle claims. Thus,
May much before the scheduled date, owing to cash flow FSLT will not only have to fork out about US$5m in bailing
problems. Groda has not made lease payments for the ships out the vessels, but also potentially incur further legal and
in June, and FSLT management has been negotiating with professional fees. It could also face delays in obtaining the
sub-charterer Rosneft with regards to continuing the original US$6m security deposits on the Groda leases, as the
underlying COA contract without Groda in the middle. The vessel redelivery process gets complicated. Moreover, the
ships had not been taken over by FSLT yet, pending a due COA revenues from sub-charterer, Rosneft, could be affected
diligence of associated liabilities. Now, with this current by this event and we believe Rosneft could even potentially
situation, we believe FSLT's immediate focus will be on walk out if there are lengthy delays in releasing the ships.
securing the release of the ships, by paying a security
payment or "bail" as such, so that the vessel can resume Avoid for now. Taking the above factors into consideration,
normal operations for Rosneft. we reduce our DPU forecasts for FY10 and FY11 by a further
19% and 9% respectively, and downgrade the stock to Fully
S& P puts FSL on CreditWatch negative. Following the recent Valued at a revised TP of S$0.38 (higher target yield of 15%,
negative news flow, Standard & Poor's Ratings Services given the worsening credit profile)). Unless further clarity
recently placed its '”BB-'” long-term corporate credit rating emerges in this evolving situation, we believe it would be
on First Ship Lease Trust on CreditWatch with negative advisable to avoid the stock, though it appears potentially
implications. It also withdrew the 'B+' issue rating on FSL's cheap in terms of dividend yield.
proposed US$200 million senior unsecured notes, which the
company originally intended to launch in December 2009 but
withdrew due to unfavorable market conditions.
Note: All scenarios assume one-off litigation costs and US$5m bailout negating the US$6m security deposits on vessels, as well
as a temporary loss in revenue from the affected vessels
Source: DBS Vickers
Page 2
Company Focus
Sales Gth (%) 112.7 14.0 (6.8) (0.5) Non-Cash Wkg. Capital (45) (18) (15) (15)
EBITDA Gth (%) 107.7 17.0 (8.1) (0.7) Net Cash/(Debt) (483) (432) (403) (377)
Opg Profit Gth (%) 156.8 28.5 (29.6) (2.9)
Net Profit Gth (%) (23.5) 74.6 (190.1) 8.3
Effective Tax Rate (%) N/A N/A N/A N/A
Cash Flow Statement (US$ m) Rates & Ratio
FY Dec 2008A 2009A 2010F 2011F FY Dec 2008A 2009A 2010F 2011F
Pre-Tax Profit 5 8 (7) (8) Gross Margins (%) 27.8 31.4 23.7 23.2
Dep. & Amort. 55 61 63 63 Opg Profit Margin (%) 27.8 31.4 23.7 23.2
Tax Paid 0 0 0 0 Net Profit Margin (%) 5.6 8.5 (8.3) (9.0)
Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 1.2 2.2 (2.1) (2.5)
Chg in Wkg.Cap. 0 (1) (4) 0 ROA (%) 0.6 0.9 (0.9) (1.0)
Other Operating CF 21 24 0 0 ROCE (%) 3.2 3.5 2.6 2.7
Net Operating CF 81 92 52 55 Div Payout Ratio (%) 1,195.4 498.4 N/A N/A
Capital Exp.(net) (354) 0 0 0 Net Interest Cover (x) 1.2 1.4 0.7 0.7
Other Invts.(net) 0 0 0 0 Asset Turnover (x) 0.1 0.1 0.1 0.1
Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 2.7 3.0 6.8 8.5
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 144.0 278.9 158.1 85.0
Other Investing CF 1 0 0 0 Inventory Turn (avg days) N/A N/A N/A N/A
Net Investing CF (353) 0 0 0 Current Ratio (x) 0.6 1.1 1.1 1.1
Div Paid (54) (45) (23) (29) Quick Ratio (x) 0.6 1.1 1.1 1.1
Chg in Gross Debt 350 (21) (32) (26) Net Debt/Equity (X) 1.3 1.1 1.2 1.2
Capital Issues 0 28 0 0 Net Debt/Equity ex MI (X) 1.3 1.1 1.2 1.2
Other Financing CF (15) (25) 0 0 Capex to Debt (%) 69.5 0.0 0.0 0.0
Net Financing CF 281 (62) (55) (55) Z-Score (X) 0.2 0.2 0.3 0.2
Net Cashflow 8 30 (4) 0 N. Cash/(Debt)PS (US cts.) (96.3) (72.1) (67.3) (63.0)
Opg CFPS (US cts.) 16.1 17.4 9.3 9.1
Free CFPS (US cts.) (54.5) 17.2 8.6 9.1
Quarterly / Interim Income Statement (US$ m) P/BV (x)
FY Dec 2Q2009 3Q2009 4Q2009 1Q2010 (x)
Turnover 25 25 24 24
1.4
Cost of Goods Sold (17) (17) (17) (17)
Gross Profit 8 8 8 7
Other Oper. (Exp)/Inc 0 0 0 0 1.2
Operating Profit 8 8 8 7
Other Non Opg (Exp)/Inc 0 0 0 0 1.0
Associates & JV Inc 0 0 0 0
Net Interest (Exp)/Inc (6) (5) (6) (7)
0.8
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 2 3 2 1
Tax 0 0 0 0 0.6
Minority Interest 0 0 0 0
Net Profit 2 3 2 1 0.4
Net profit bef Except. 2 3 2 1
EBITDA 23 23 23 23 0.2
Sales Gth (%) 0.1 (0.9) (0.6) (0.2) May-07 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10
EBITDA Gth (%) 0.3 (1.1) (0.1) (0.4)
Opg Profit Gth (%) 0.8 (3.1) (0.2) (3.4)
Net Profit Gth (%) 52.9 16.6 (34.1) (62.0)
Gross Margins (%) 31.8 31.0 31.2 30.2
Opg Profit Margins (%) 31.8 31.0 31.2 30.2
Net Profit Margins (%) 9.4 11.1 7.4 2.8
Page 3
Company Focus
DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
DBS Vickers Research is available on the following electronic platforms: DBS Vickers (www.dbsvresearch.com); Thomson
(www.thomson.com/financial); Factset (www.factset.com); Reuters (www.rbr.reuters.com); Capital IQ (www.capitaliq.com) and Bloomberg
(DBSR GO). For access, please contact your DBSV salesperson.
GENERAL DISCLOSURE/DISCLAIMER
This document is published by DBS Vickers Research (Singapore) Pte Ltd ("DBSVR"), a direct wholly-owned subsidiary of DBS Vickers
Securities (Singapore) Pte Ltd ("DBSVS") and an indirect wholly-owned subsidiary of DBS Vickers Securities Holdings Pte Ltd ("DBSVH").
[This report is intended for clients of DBSV Group only and no part of this document may be (i) copied, photocopied or duplicated in any
form by any means or (ii) redistributed without the prior written consent of DBSVR.]
The research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty as
to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for
general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial
situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken
in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. DBSVR accepts no liability
whatsoever for any direct or consequential loss arising from any use of this document or further communication given in relation to this
document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. DBSVH is a wholly-
owned subsidiary of DBS Bank Ltd. DBS Bank Ltd along with its affiliates and/or persons associated with any of them may from time to
time have interests in the securities mentioned in this document. DBSVR, DBSVS, DBS Bank Ltd and their associates, their directors, and/or
employees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform
broking, investment banking and other banking services for these companies.
The assumptions for commodities in this report are for the purpose of forecasting earnings of the companies mentioned herein. They are
not to be construed as recommendations to trade in the physical commodities or in futures contracts relating to the commodities
mentioned in this report.
DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction
as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification
on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.
ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of
his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of
10 Jun 2010, the analyst and his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the
securities recommended in this report (“interest” includes direct or indirect ownership of securities, directorships and trustee positions).
Page 4
Company Focus
RESTRICTIONS ON DISTRIBUTION
General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or
resident of or located in any locality, state, country or other jurisdiction where such distribution, publication,
availability or use would be contrary to law or regulation.
Australia This report is being distributed in Australia by DBSVR and DBSVS, which are exempted from the requirement to
hold an Australian financial services licence under the Corporation Act 2001 [“CA] in respect of financial services
provided to the recipients. DBSVR and DBSVS are regulated by the Monetary Authority of Singapore [“MAS”]
under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for
“wholesale investors” within the meaning of the CA.
Hong Kong This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and
regulated by the Hong Kong Securities and Futures Commission.
Singapore This report is being distributed in Singapore by DBSVR, which holds a Financial Adviser’s licence and is regulated
by the MAS. This report may additionally be distributed in Singapore by DBSVS (Company Regn. No.
198600294G), which is an Exempt Financial Adviser as defined under the Financial Advisers Act. Any research
report produced by a foreign DBS Vickers entity, analyst or affiliate is distributed in Singapore only to
“Institutional Investors”, “Expert Investors” or “Accredited Investors” as defined in the Securities and Futures
Act, Chap. 289 of Singapore. Any distribution of research reports published by a foreign-related corporation of
DBSVR/DBSVS to “Accredited Investors” is provided pursuant to the approval by MAS of research distribution
arrangements under Paragraph 11 of the First Schedule to the FAA.
United Kingdom This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the
meaning of the Financial Services and Markets Act and is regulated by The Financial Services Authority. Research
distributed in the UK is intended only for institutional clients.
rd
Dubai/ This report is being distributed in Dubai/United Arab Emirates by DBS Bank Ltd, Dubai (PO Box 506538, 3 Floor,
United Arab Emirates Building 3, Gate Precinct, DIFC, Dubai, United Arab Emirates) and is intended only for clients who meet the
DFSA regulatory criteria to be a Professional Client. It should not be relied upon by or distributed to Retail
Clients. DBS Bank Ltd, Dubai is regulated by the Dubai Financial Services Authority.
United States Neither this report nor any copy hereof may be taken or distributed into the United States or to any U.S. person
except in compliance with any applicable U.S. laws and regulations.
Other jurisdictions In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for
qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such
jurisdictions.
DBS Vickers Research (Singapore) Pte Ltd – 8 Cross Street, #02-01 PWC Building, Singapore 048424
Tel. 65-6533 9688, Fax: 65-6226 8048
Company Regn. No. 198600295W
Page 5