First Ship Lease Trust (FSL)

First Ship Lease Trust: Is a business trust that charters bareboats and commercial ocean-going transportation vessels. Its portfolio of vessels consist chemical tankers, product tankers, crude oil tankers, containerships and dry bulk carriers. Maybank-KE met with management and highlights a potential turnaround. After 10 quarters of losses, it has turned profitable in 2Q14 with net profit of US1m. FSLT had earlier breached debt covenants in Jun 2012, but is currently compliant with relaxed covenants. FSL has been paying down its debt at a run rate of US$44m a year, and if market conditions improve, it could even meet the original covenants. Maybank-KE guides that the potential upside comes from meeting the covenants, citing two metrics in which investors will value the company: 1) Market value of fleet – Since it is asset heavy, the liquidation value should be the floor of the unit price. If FSL can comply with the original value-to-loan convenant of 125%, the fleet is worth about US$424m at current market price, or $0.181/share. 2) Dividend yields – Since suspending dividends from the breach of covenant has caused an overhang in the trust, any dividend resumption should be a potential catalyst. When the VTL covenant of 125% is met, interest costs would be lowered and the trust could start paying dividends then. FSL is currently trading at ~0.2x P/B