The net procceds of about S$40.9m, after the placement fee and estimated offering expenses, will be utilised to fund vessel acquisitions.
FSLT has not identified any specific assets to be acquired with the net proceeds.
FSLT has recently reaffirmed a quarterly DPU of 1.5 US cents from 3Q09 onwards which implies an annualised yield of 14%.
While it is difficult to estimate the effect of FSLT's proposed vessel acquisitions, shipping trusts generally do not undertake acquisitions that are not accretive. However, the management is targeting for a gross asset yield of 15% p.a.
Reiterate HOLD and maintain our fair price of S$0.64 based on 0.8x 2010F P/B of the container shipping sector. We suggest entering at S$0.52.
Reasons for maintaining HOLD:
a) EBITDA yield of 36% p.a. is still intact.
b) Accretive acquisitions will boost its distributable cash.
c) However, although FSLT has begun repaying part of its loans on a quarterly basis, it still has outstanding loans of US$400m due for balloon payments in 2012 and 2014. It will either have to refinance or raise equity. The latter would likely lead to a yield dilution. If FSLT were to raise US$400m at the current share price of S$0.61, this would imply a mere yield of 5.6% p.a. (before accretive acquisitions).
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