PhillipCapital’s research analyst Vivian Ye has initiated “buy” on First Ship Lease Trust (FSL Trust) with a target price of 10.5 cents.

The company is a Singapore-based business trust that was listed on the SGX mainboard in March 2007. The trust owns a fleet of vessels in various shipping sub-sectors, which it leases to the international shipping industry.

“Our target price of 10.5 cents is pegged at 1.0 times FY2022 price-to-book value (P/B) higher than its 10-year historical average of 0.34 times as we see value yet to be unlocked from its current fleet,” says Ye.

She adds that the valuation given by the brokerage comes at the higher end compared to FSL Trust’s peers.


SEE:FSL Trust to sell two LR2 product tanker newbuildings


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“We believe there is value yet to be unlocked from the current fleet,” she says.

Ye’s positive recommendation on the stock is attributable in part to FSL Trust’s attractive distribution yields.

“Since its return to profitability in FY2019, the trust has been making distributions to its unitholders. FY1919/FY2020 distribution per share (DPS) was 1.50/3.00 US cents (1.98/3.96 cents), representing yields of 23.1% and 46.2%.”

“Projected distribution yields for FY2021/FY2022 are 47.0%/8.5%. FY2021 yield is expected to be about the same as FY2020 thanks to cash inflow from the sale of new LR2 vessels and lower loan repayments,” she says.

The trust’s diversified portfolio is another plus as it provides downside protection for the business.


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In addition, the trust has sufficient debt headroom for future growth via new vessel acquisitions after it entered into an agreement on Feb 17 to sell the two new LR2 vessels it ordered in 2018.

“The agreed selling price was US$52.5 million per vessel, while they were acquired in December 2018 for a total of US$97.6 million, yielding a gain of US$7.6 million. Gearing is expected to decrease from 18.7% in FY2020 to 10.1% in FY2021 as the trust turns from net debt to net cash,” says Ye.

As at 1.40pm, shares in FSL Trust are trading 0.1 cent lower or 1.2% down at 8.4 cents or 0.88 times price-to-book for the FY2021, according to Ye’s estimates.