PhillipCapital analyst Vivian Ye has maintained “accumulate” on First Ship Lease Trust (FSL Trust) albeit with a lower target price of 3 cents from 5 cents previously, as profit after tax plunged 95% y-o-y on lower revenue.


See: FSL Trust declares DPU of 2 US cents in 1Q21


 

“We halve FY2021 net profits due to subdued tanker market. Our target price remains pegged to 0.9 times FY2021 price-to-book (P/BV), [which is] the industry average,” she writes in a May 3 report.

Ye has also raised her DPU estimates by 56.7%.

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“We expect FSL to pay out all its FY2021 operating cash flow of US$14.5 million together with net sales proceeds from its recent disposal of three product tankers worth $55 million,” she adds.

Despite the lower demand and higher supply in the global tanker market, the trust declared distribution per unit (DPU) of 2 US cents (2.65 cents) for the quarter, 33.3% higher than DPU of 1.50 US cents in the same period the year before. The higher dividends came from the proceeds from the sale of the Trust’s tankers, including two Long Range 2 newbuilds.

The Trust now enjoys “strong liquidity” with healthy cash flows as it has cleared all borrowings with proceeds from its tanker sales.

However, the lower revenue and net profits reported in the 1QFY2021 as well as lower contracted revenue remains a concern for the analyst.


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Looking ahead, Ye believes that tanker rates are expected to remain “tepid” -- which depend on oil demand and supply -- with most international borders remaining closed.

“According to the Organisation for Economic Cooperation and Development (OECD), oil demand in 2021 will grow from 91.3 million barrels per day (bpd) in 2020 to 97.1 million bpd, the bulk of it in 2HFY2021. This is still below pre-pandemic levels,” Ye writes.

“Even though OPEC’s monthly oil production ticked up to 25 million bpd in March 2021, this was still far below average pre-pandemic monthly levels of 30 million bpd in 2019,” she adds.

“Meanwhile, floating crude oil storage has decreased over 2020, adding more tonnage back to the fleet. With tanker demand remaining low and higher supply, tanker rates may stay at current levels in the short term.”

As at 11.19am, units in FSL Trust are trading flat at 8.1 cents.