DHT Holdings Inc

NYSE:DHT

Earnings Call Analysis

DHT Holdings: Strong Q2 Results and Future Outlook

DHT Holdings reported strong financial results for Q2 2024 with total revenue of $103.7 million, EBITDA of $80 million, and a net income of $44.5 million. The company maintains a robust balance sheet with substantial liquidity totaling $263 million. Vessel operating expenses were $20.4 million, and they paid out $46.8 million in dividends. The forecast for the third quarter includes 1,630 spot days booked at $42,100 per day, with a breakeven point at $23,600. DHT also updated the delivery schedules for their four new ships in 2026, expecting increased revenue days by 550 to 600.

Navigating Through a Strong Quarter

DHT Holdings reported solid financial results for Q2 2024, showcasing robust earnings driven by its operational excellence in the oil tanker sector. Total revenues reached $103.7 million, with an EBITDA of $80 million. The significant net income of $44.5 million translates to earnings of $0.27 per share, reflecting the company’s ability to generate substantial profits amid volatile market conditions.

Maintaining a Strong Balance Sheet

The company demonstrated financial resilience with a low leverage ratio of 18.6% and a net debt per vessel of $14.2 million. With total liquidity of $263 million—comprised of $73 million in cash and $191 million available under credit facilities—DHT maintains a strong financial position to support future growth and shareholder returns.

Cash Flow and Shareholder Returns

DHT's cash flow generation remains stable, concluding Q2 with $73 million in cash after generating $80 million in EBITDA. A notable portion of this cash flow was allocated to a quarterly cash dividend of $0.27 per share, totaling $46.8 million, marking the 58th consecutive dividend payment. This dividend policy reflects DHT's commitment to returning value to shareholders while maintaining prudent capital management.

Analyzing Earnings Performance and Future Projections

The vessels deployed in the spot market achieved impressive earnings of $52,700 per day, while time-chartered vessels averaged $36,400 per day. With an average time charter equivalent (TCE) of $49,100 per day for the quarter, DHT is projected to continue delivering solid performance in the upcoming quarters. However, the guidance for Q3 indicates a potential decrease in average rates, with 552 time charter days covered at a rate of $37,700.

Impact of Newbuild Program on Future Performance

DHT is advancing its newbuilding program with revised and accelerated delivery schedules for four ships, now planned to be delivered between February and July 2026. This adjustment significantly increases expected revenue days by approximately 550 to 600 days for the year, positioning the company favorably for growth as oil demand continues to evolve.

Market Outlook and Strategic Insights

Despite facing a seasonal downturn in the spot market, DHT's outlook remains positive. Analysts foresee potential improvements in refining margins which could drive demand for crude oil and subsequently benefit DHT's operations. The transition towards LNG in heavy trucking and growth in the petrochemical sector presents additional opportunities for DHT in the long term, corroborating the strategic pillars of disciplined execution and solid customer relations.

Balancing Risks and Market Dynamics

While OPEC's decisions concerning oil production levels could impact VLCCs' operations, DHT remains optimistic about the overall market dynamics as the Atlantic market grows. With increasing crude transport needs due to longer distances and an aging fleet, DHT is poised to leverage its competitive edge in the tankers market, continuously adapting to industry fluctuations.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and thank you for standing by. Welcome to the Q2 2024 DHT Holdings, Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Laila Halvorsen, CFO. Please go ahead.

[Laila Halvorsen, executive]

Thank you. Good morning and good afternoon, everyone. Welcome, and thank you for joining DHT Holdings' Second Quarter 2024 Earnings Call. I'm joined by DHT's President and CEO, Svein Moxnes Harfjeld. As usual, we will go through financials and some highlights before we open up for your questions. The link to the slide deck can be found on our website, dhtankers.com.

Before we get started with today's call, I would like to make the following remarks. A replay of this conference call will be available on our website, dhtankers.com until August 20. In addition, our earnings press release will be available on our website and on the SEC EDGAR system as an exhibit to our Form 6-K.

As a reminder, on this conference call, we will discuss matters that are forward-looking in nature. These forward-looking statements are based on our current expectations about future events as detailed in our financial report. Actual results may differ materially from the expectations reflected in these forward-looking statements. We urge you to read our periodic reports available on our website and on the SEC EDGAR system, including the risk factors in these reports for more information regarding risks that we face.

As usual, we will start the presentation with some financial highlights. We maintain a very strong balance sheet, represented by low leverage and significant liquidity. At quarter end, financial leverage was 18.6% based on market values for the ships, and net debt was $14.2 million per vessel. The second quarter ended with total liquidity of $263 million consisting of $73 million in cash and $191 million available under our revolving credit facilities.

Now over to the P&L. We are pleased with the results for the quarter. We achieved revenues on TCE basis of $103.7 million and EBITDA of $80 million. Net income came in at $44.5 million, equal to $0.27 per share. Vessel operating expenses for the quarter were $20.4 million, which included some one-offs in addition to timing of purchases of spirits and consumables.

G&A for the quarter was $4.5 million. The vessels in the spot market achieved robust earnings with $52,700 per day, and the vessels on time charters made $36,400 per day. They achieved -- the average TCE achieved for the quarter was $49,100 per day.

For the first half of 2024, our spot vessels achieved $53,400 per day, while the average combined time charter equivalent earnings came in at $50,000 per day.

Net income for the first half of 2024 came in at $91.6 million, equal to $0.57 per share.

And then over to the cash flow highlights. Cash flow for the second quarter of 2024 was stable, and we started the quarter with $73 million in cash. We generated $80 million in EBITDA. Ordinary debt repayment and cash interest amounted to $16 million, and $46.8 million was allocated to shareholders through a cash dividend, while $0.8 million was used for maintenance CapEx.

We paid first installments for all 4 newbuildings amounting to $51.5 million, and we drew $25 million on the ING revolving credit facility to partly fund the installments together with our discretionary cash flow. Further, $8.8 million was related to changes in working capital and the quarter ended with $73 million in cash.

Switching to capital allocation. DHT has a defined and predictable capital allocation policy. And in line with our policy, we will pay $0.27 per share as the quarterly cash dividend, which is equal to 100% of ordinary net income. The dividend will be payable on August 30 to shareholders of record as of August 23. This marks the 58th consecutive quarterly cash dividend and the shares will trade ex-dividend from August 23.

On the left side of the slide, we present an update on estimated P&L and cash breakeven rates for 2024. P&L breakeven for the full year is estimated to $27,700 per day for the fleet, while cash breakeven is estimated to $18,500 per day, resulting in $9,200 per day per ship in discretionary cash flow after dividends. So assuming the vessels earn P&L breakeven, this means about $79 million in discretionary cash flow for the year.

On the right side of the slide, we illustrate the quarterly cash dividend we have returned to shareholders since we updated the dividend policy in the second half of '22. This amounts to a total of $1.97 per share.

And with that, I will turn the call over to Svein.

[Svein Moxnes Harfjeld, executive]

Thank you, Laila. Here with the updated outlook for the third quarter for the company. We have 552 time charter days covered for the third quarter at $37,700. This rate assumes only the base rate for the 2 time charter contracts that have profit-sharing features. The forecast includes the time charter for DHT Europe, built 2007, at $49,500 per day that commenced at the end of June. We expect to have 1,630 spot days in this quarter, of which 75% have been booked at an average rate of $42,100. The current spot market is below this level, hence, there is a risk that the average for the quarter will come down from this number.

The spot P&L breakeven for the quarter is estimated to be $23,600, a number that should assist you in estimating the net income contribution from our spot [ fleets ].

Here we present you with an update for our newbuilding program. We have achieved meaningful improvements in the delivery schedules for all 4 ships. The delivery schedule is now February, April, May and July in '26. This results in a significant increase in revenue days for the year. When compared to the schedules at the time of entering into the contracts, we now expect increase in revenue days to be in the range of 550 to 600 days for the year.

As you will note, the ships under construction have been all allocated names.

As indicated during our previous earnings call, the options for additional ships were not declared and have as such expired. The advanced schedule was made possible as certain projects for other ship types have been revised at the shipyards. We are very pleased with this outcome, and that our relationship with yard resulted in us being afforded this priority.

The spot market is currently in a seasonal weak period. As many analysts and research reports are suggesting, we are now in a waiting game for refinery maintenance to complete and for runs to increase.

On the graph to the left, you will see that seaborne transportation of crude oil hit about 41.7 million barrels per day in February and March this year. In the past 2 months, this has come down to about 40.3 million barrels per day, i.e., down some 1.5 million barrels per day. As you will see in the graph to the right, this development resulted in inventory builds largely in April, and we understand in China in particular. This reversed in June and July as refiners started to draw on inventories being the key culprit behind the reduced demand for transportation.

We believe the prior slide would drive well with this illustration. On the left, you can note that refining margins softened during the second quarter. In the graph on the right, you can see that refiners have built inventories of diesel and gasoline during the same period. The forward curve suggests that refining margins could improve and would offer an opportunity to reduce these inventories. We think it's logical to assume that this will play out and that it will generate increased demand for crude oil feedstock and our services to rebuild crude oil inventories.

In general, our markets offer attractive fundamentals and prospects with continued oil demand growth, longer transportation distances and a limited supply of new ships in combination with rapidly aging fleet. Our strategic pillars remain with disciplined execution. We believe we are well structured for the markets we operate in, focusing on solid customer relations, offering safe and reliable services, supported by a solid balance sheet, strong liquidity, robust breakeven levels, all match up to the defined and shareholder-friendly dividend policy.

And with that, operator, over to you.

[Operator]

[Operator Instructions] Our first question comes from the line of John Chappell from Evercore ISI.

[Jonathan Chappell, analyst]

A bit of a housekeeping one first with the new accelerated schedule on the newbuildings, what's the payment schedule look like between now and delivery? Any more payments this year and the cadence for next year? And then also, is this all going to be cash funded? Or do you plan on drawing down debt at delivery for the 4?

[Laila Halvorsen, executive]

Yes. So in our press release, I think under Note 5, we've included a table with future expected payments. So you see there that within the next 12 months, we expect payments of $89.9 million and then the rest after that.

We've looked into different financing projects, and we are very pleased with suggestions that we have, but nothing is decided yet. So we will get back to you with that once we've finalized.

[Jonathan Chappell, analyst]

Okay. And then...

[Svein Moxnes Harfjeld, executive]

If I just may add to that, Jon, is that there is, of course, some timing differences when we generate the cash flow that we'll use for the equity component of these ships. And -- so hence, we sort of on time -- from time then draw on RCFs and then generate cash flow and back and forth on that. So that's why this happened during this past quarter.

[Jonathan Chappell, analyst]

Have you had any interest at this point with delivery now within the next 24 months on time charters? Or do you just assume that those would be implemented in the spot market upon delivery?

[Svein Moxnes Harfjeld, executive]

There is some initial interest, but I would say it's not at the level that sort of provides for negotiations. So we have intention and interest in seeing if we can develop this. I think it will take a bit of time, and it's probably a next year event if we decide to pursue that. So we have -- it is our ambition to build more long-term and fixed income for the company in general. And these ships will offer some very interesting opportunities for a couple or 3 clients in particular that have shown interest.

[Jonathan Chappell, analyst]

Okay. And then finally, the seasonality makes sense. I have seen it several years, third quarter is weakest. Maybe this time though, there's some concerns about China as being the biggest end market for crude, long-haul deliveries and some potential weakness there. Have you seen any signs that maybe China is weakening and it's a bit more beyond seasonality? There's some cyclical component to it? Or you truly just think it's a function of refinery shutdowns at this time of the year?

[Svein Moxnes Harfjeld, executive]

I think there's a bit of both. We've seen some development in that heavy trucking is starting to implement LNG as fuel. And LNG or heavy transportation in general in Asia has been a meaningful contributor to the demand growth in general. So this is something to watch. On the positive side, there is meaningful growth in the petchem industry, which is, I guess, a reflection of policy in China that they want to focus more on consuming industry. And the new refining capacity coming on in China has around upwards to 80% of petchem output, of which the predominant part is crude oil based. But this is not happening right now. This is something we will see developing now over the next, I would say, 12 to 24 months.

So there is some change in where the oil is going or what's the oil is being used for, if you like. And I guess the negative components have come earlier than the -- when the positive components will come into the market. So that's probably amplified a bit the seasonality this summer.

[Operator]

Our next question comes from the line of Frode Morkedal from Clarksons Securities.

[Frode Morkedal, analyst]

Regarding the newbuild options, is the decision to not exercise them due to the fact that it could impact the ability to pay 100% of earnings in dividends? Or is it a view on the newbuild prices themselves?

[Svein Moxnes Harfjeld, executive]

Well, if we had declared those options, it would be a meaningful increase in CapEx, of course, and that would also change the structure of our balance sheet considerably. And we have no desire to do that. So the core plan was all along to do the 4 ships with a caveat that if we have had some early interest to develop through long-term charters, say 7, 8 years or longer, if that had happened earlier and we could develop some particular financing for that, that's something we might have considered for 1, 2 or all 4 ships, but that did not materialize. So we felt it prudent to do the 4 ships, and we're very happy with that. So yes, that's a short story, I guess.

[Frode Morkedal, analyst]

Yes, makes sense. My next question is about the market. I guess there's been some talk about the VLCC cleaning up to do CPP cargoes. What's the magnitude of that activity? And is that something you've also considered?

[Svein Moxnes Harfjeld, executive]

It's mostly Suezmaxes, we think maybe around 20 that have done that. There's been some VLCC cargoes, we think about a handful. Ideally, it should coincide with that you have a relatively modern ship that is then going to dry dock. And sort of when that happens, that you also clean up the ship sort of beyond the conventional dry dock work. It will take quite a few extra days, probably 20, I would say, and it will have some cost, a few hundred thousand dollars depending on the ship and that ship's prior cargo history and things like that.

So -- and there was an opportunity now with the sort of arbitrage pricing on products as well as the lower cost of ships. So we have done this in the past. We did not have any ships that were sort of suited at this point for this business opportunity, but it's not an unknown territory for DHT. So we guess probably 5 ships, maybe 6, and that's about it.

[Operator]

Our next question comes from the line of Omar Nokta from Jefferies.

[Omar Nokta, analyst]

Just wanted to follow up really quickly on the last question from Frode about the VLCCs and the potential carrying the clean cargoes. You mentioned that it's typically done before the vessels going into dry docks. Is that basically -- would this be just 1 cargo that they're able to do and then go to dry dock, or can they do a series of cargoes?

[Svein Moxnes Harfjeld, executive]

It's done in connection with the dry docks so that you clean up. And then when you load the refining products, these cargoes are typically going to the Atlantic Basin and quite a lot of them had gone to Africa. You tend to be laying or storing the cargo for a while before you are able to unload. So that's sort of you could say, not a positive because you have a freshly painted vessel, and you tend to get some growth after this. But of course, the charter rates are at the premium to the general market, so that, I guess, compensates for some of that.

Then there's some detailed nuances on risk with contamination and decolorization and things like that, to what extent you can transfer some of that risk to the counterparty and whatnot. But it is really for 1 cargo unless you after discharge say, in the Atlantic Basin, you decide to balance back to try to do the second cargo. But that is normally not done and ships view the assessment from a repositioning of the dry dock into the Atlantic Basin and to then trade the cargoes loaded in U.S. Gulf or Brazil, West Africa.

[Omar Nokta, analyst]

Okay. Got it. And then just wanted to ask, maybe you -- we were discussing earlier the seasonality aspect and it comes every year and you have the chart that shows the pickup. I guess I wanted to ask maybe a bigger picture, it feels like we're in this pattern of OPEC constantly needing to revisit its production levels. And maybe we're looking at a situation where flat production from OPEC is best case, and they're constantly perhaps having to cut. And that's not necessarily because of demand, but it's the fact that you have so much non-OPEC production growth.

I guess how do you think the VLCCs will continue to fare in this type of market? If we were to think about the dynamic here over the next, say, 6 to 18 months where OPEC is flat to down, but then you've got the Atlantic that's growing, how do you think VLCCs fare in this type of market?

[Svein Moxnes Harfjeld, executive]

I think that would be a positive. So the Atlantic barrels out to Asia is truly a VLCC business. And it's impossible really for Suezmax to compete in freight charts on that. So I would say that's a positive. I think if OPEC at some point now decides to release barrels to the market is because there is true evidence of demand growth also so that those barrels can come to the market without necessarily rocking the oil price to the sort of sinkhole. So I think I always thought that OPEC or Saudi in particular, clear objective of managing price more than anything and that is precious to them.

[Omar Nokta, analyst]

Okay. Yes. And then just a final one. The TMX has been ramping up, and it looks like they're almost at a, not necessarily run rate, but looks like a good number of Aframaxes are loading perhaps somewhat consistently out of the Vancouver region. Has there been any settling of how these cargoes are being directed? Obviously, it's the Afras that are loading at the port, but is reverse lightering onto VLCC is becoming a standard thing? And is that also something that maybe will move the needle on VLCCs just perhaps not visible now because of the summer?

[Svein Moxnes Harfjeld, executive]

Yes. There is already a number of cargoes where the Aframaxes have been heading South, California or even further South. And there's been then reverse lightering onto these for those ships then go predominantly to China. There's also been, I think, one cargo to India. And the sort of freight cost of that is meaningfully cheaper than sending an Aframax directly from the Vancouver area over to China because also those Afras will not be fully loaded due to dock restrictions. So we think that is a new trade that will evolve for this on top of what else is going on.

[Operator]

There are no further audio questions at this time. So I will hand the call back to Svein Moxnes Harfjeld field for any closing remarks.

[Svein Moxnes Harfjeld, executive]

Thank you to all for staying interested and tuned in to DHT, and we wish you all a good day ahead. Have a good one.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.