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Shipping trusts

Singapore shipping trusts' current yields of around 11% make them the best asset class in Singapore in terms of returns, but high yields also make yield-accretive acquisitions "a lot more difficult", crimping expansion plans, says DMG. Adds high yields also a problem when shipping trusts seek to raise capital as more units would have to be issued due to their low prices, resulting in earnings dilution. Still, trusts "most definitely" worth a look, as their tax-free yields offer support to unit prices amid current market volatility and provide cushion against inflation.

Notes while First Ship Lease Trust, Pacific Shipping Trust, Rickmers Maritime remain largely ignored by investors due to lack of critical mass and understanding of their business model, they'll be "looked upon favorably as the markets get increasingly volatile and investors seek safe havens."

 

DBS Vickers tips Singapore shipping trusts to benefit from a firmer USD as their earnings and dividend payouts are USD-based. Broker tips USD to strengthen to $1.44 against the SGD over the next 6 to 12 months from current $1.38.

Broker says Rickmers Maritime Trust looks a good bet with its 10.9% FY08 yield, reiterates Buy rating, $1.55 target price. Says, "technically, we see a gradual but steady upside towards $1.30 followed possibly by $1.42. We recommend accumulating the stock as downside is limited at the $1.08 support level."