Jinhui Shipping and Transportation Ltd

OSE:JIN

Earnings Call Transcript 2020-Q1

[Wei Man Ching, Vice President]

Hello, everyone. Can everybody hear me? Okay. I can hear someone. It's okay. I believe you can all hear me. If you do not hear me, please let me know in the chat side -- on the chat. Hello. I think it's time, so I shall begin. This is Raymond Ching from Jinhui Shipping and Transportation. Welcome to 2020 Q1 results presentation. Sorry, there's another participant joining. This is the first time I'm using the Zoom meeting. I think it's very convenient that I can share the document real time. So I hope this is convenient for all. I shall fire away.First of all, I would like to go to the highlights of the numbers first. Q1 2020 financial highlights, the revenue for the quarter recorded USD 9 million. We have recorded a net loss for the quarter of USD 18 million. Details we shall discuss later. The basic loss per share is USD 0.168. And the gearing ratio as at 31st of March 2020 stands at 23%. The consolidated net loss mainly attribute to -- I believe, we are all in the same boat in terms of this. We have all experienced a very poor business sentiment due to the outbreak of the COVID-19 pandemic. This leads to a reduction in the chartering revenue and a decrease in fleet utilization rate. Now there's also -- because of the COVID-19, the unforeseen negative impact it has on global business irregardless of industries, it literally puts all human and business activities to a halt. Financial markets is of no exception. We have recorded a significant unrealized fair value loss on financial assets through the P&L of USD 10 million in the Q1 2020. I believe investors would also notice, it's all over the news, the unforeseen significant volatility in oil prices. It hit the headlines where the WTI West Texas -- West Texas Immediate (sic) [Intermediate] oil futures at one point transacted at negative value, i.e., people who bought the WTI futures, the May futures, did not lose -- only lose everything they invested in, they also had to fork out additional money in order to take physical delivery of the oil. Although we have no exposure in crude oil futures or any oil futures for that matter, the oil price obviously also affects the bunker prices, which also introduced volatility in the bunker prices. And as a result, we experienced an increase in shipping-related expenses mainly due to bunker expenses of $5 million. This is a result of both price loss on bunker fuel on-board due to the bunker fuel price volatility as well as increase in bunker consumption for the sake of positioning of our owned vessels in between time charter contracts of vessels. During the quarter, the group drawn new secured bank loans of $15.9 million. At the same time, we repaid $20.1 million, just normal management of our balance sheet. There was increase in interest income, which was attributable to the interest income generated from loan receivables during the quarter. In addition, in relation to our co-investment project in Shanghai, there was an additional USD 1.4 million paid to the co-investment property project in Shanghai, with total paid amount of $8.9 million as of March 2020. And I wish to take this opportunity to announce promptly, which the announcement was actually delivered to the market yesterday, we received an update very recently from the investment manager of the co-investment in the Shanghai property. And there's risk that the co-investment property project in Shanghai might not close, given the changing market dynamics in the China/Shanghai market. There's also -- one of the -- another reason is also the change in lending availability due to multiple negative events happening within a short time scale. I will go into detail on that in later slides. Now a proposal was sent to all investors of the co-investment project. And again, we will discuss this in subsequent slides. On the next slide on the financial highlights, I don't think I need to go into details, because they are self-explanatory. It's not a pretty set of figures. I have to stress that we already, in past years, have experienced seasonality and market generally would slow down before the Chinese New Year. This year is no exception. Unfortunately, a black swan event happened, the COVID-19 pandemic, which took the globe by surprise. I believe many on the planet originally did not expect how lethal or how negative it could impact business. Unfortunately, the magnitude of the negative impact of COVID-19 on business is way, way larger than originally expected from many. On the key finance ratios as of Q1 2020, our total asset stands at $383.39 million. Secured bank loans, $129.7 million. The current ratio is at 1.22:1; net gearing of 23%; working capital of $18.2 million. The available liquidity has dropped, given the mark-to-market value, of course, our investments, USD 76.95 million. In terms of fleet development, currently, we have 18 vessels in our own fleet. The next slide is the list of our fleet, primarily in the Supramax plus 2 Post-Panamax, all very flexible. To be honest, although it's not -- it's nothing to celebrate about, but our core business, our core shipping business, has proven to be more resilient relative to many other industries at this juncture against the current market backdrop. May I take this opportunity also to let you all know that we are very fortunate that all our staff, onshore and onshore, and all our vessels are all safe and sound. On the right-hand column, you would see that that's the time bar where our ships have to install the ballast water treatment systems. On the next slide, in terms of the debt maturity profile. As of Q1 2020, 51% of our loans has to be repaid within 1 year, 12% between 1 to 2 years, 35% between 2 to 5 years and 2% over 5 years. These secured bank loans represented vessel mortgage loans, revolving loans, term loans and property mortgage loans, which were secured by the group's motor vessels, land and buildings as well as investment properties. Fair assets at fair value through P&L and loan receivables to secure credit facilities utilized as well as unutilized by the group. The increase in finance cost for current quarter was mainly attributable to the rising interest rates and increase in new secured bank loans as compared with corresponding quarter in 2019. Now despite the Fed has lowered interest rate, however, the margin request by banks has slightly increased. Cargo analysis for Q1 2020, 51% in minerals. There's a drop relative to Q1 2019, given there is the nickel ore situation out of Indonesia has been paused temporarily. We have been monitoring the situation of the nickel ore situation out of Indonesia, given all countries are suffering. Of course, this is not cast in stone, but we believe that the nickel ore mines could open up in coming weeks, hence, creating further more demand in dry bulk shipping. 29% of the cargo in Q1 2020 is coal, 13% is cement and 7% is steel. There's a slight volume drop comparing in Q1 2020 relative to Q1 2019. For this particular quarter, we have transported 3.669 million tonnes. In terms of loading port analysis, despite big disruptions in global markets, I think from what we see from the activities of our own fleet, the concentration of trading pattern has not changed. 77% of the activities in terms of loading ports are from Asia, excluding China; 14% from Australia; 5% America; and 4% from China. In terms of discharging port analysis, this is even more telling the importance of the Chinese market. 81% of our cargoes were discharged in China and 19% Asia, excluding China. Of course, this is not representative of the entire dry bulk market, this depends on the route and the choice of cargoes as well as familiarity with customers. At least for us, it shows a very, very heavy influence of the Chinese market on the dry bulk shipping market. In terms of the time charter revenue for Q1: the Post-Panamax fleet, $8,223; Supramax fleet, $5,007; and average, $5,349 as of Q1 2020. Of course, a significant drop from Q1 2019. There is a double or I dare say a triple whammy seasonality effect. The U.S.-China trade war intensifying doesn't help. And what's worse is the very much unexpected COVID-19 pandemic. This, of course, you can imagine everybody's lives pretty much was grounded to a halt. Planes stopped flying. Cars are not driven. The energy that has been used from the industrial perspective, be it liquid oil, be it solid coal, all suffered significant drop. Therefore, if you look at the global economy and the supply chain holistically, it is not surprising to see declining time charter equivalent of our fleet. In terms of daily running costs of our owned vessel, for Q1 '19 -- sorry, Q1 2020, our depreciation -- sorry, the all-in daily vessel running costs of our fleet, $5,884. So the -- for our core business, the cost base, we have tried our very best to squeeze it further down. The interest, $333; depreciation, of course, with aging fleet, the depreciation would drop also a reduction in the fleet size, $2,091. Running cost pretty much as same as first quarter of 2019, $3,460, minimal change. The decrease in daily finance cost was mainly due to repayment of vessel mortgage loan during the quarter. Daily vessel running cost was kept at $3,460 for the current quarter. And rest assured, we will continue this cost reduction effort in order to maintain a highly competitive cost structure, which hopefully will squeeze out as much profit or positive cash flow as much as possible. I think this quarter in particular, because of the recent update, bad news, I would say, I believe that you would all agree, the update on the co-investment property in Shanghai. This is the chart of the structure of the investment. The box, co-investor Jinhui, the green box highlighted in yellow is Jinhui. We own 34.59% of the company, Dual Bliss, which, in turn, owns 20.54% through a co-investment vehicle, and then a wholly-owned offshore-onshore subsidiaries, typically named as WOFE, wholly-owned foreign enterprise in the project, which is 1 Shanghai Street in Shanghai, the Tower A. The site is actually a fantastic site. It's in the Jing'an province. When the project was first entered into, of course, the market dynamics in terms of potential demand, pricing, et cetera, all were very favorable. Now the effective beneficial interest rate in Tower A for Jinhui is 7.1%, 7.1054%, based on $10 million investment. Unfortunately, we first learned of the bad news on the 19th of May 2020 and further news on 26th -- in fact, even for the past few days it keep on coming. More details, and we have summarized the picture as follows. So we received updates from the investment manager on the co-investment in the property in Shanghai, Tower A, which is now running into a challenge in terms of closing the acquisition. The main reasons are of no surprise. Since the transaction was first entered into, the U.S.-China trade war, surprise to a lot of market participants, intensified, and it continued to slow down the Chinese economy. Secondly, the COVID-19. Between January and April 2020, China was virtually shut down due to the COVID-19 outbreak. The real situation in China is that the Q1 2020 GDP growth was negative 6.8%. The full year growth is likely to record a significant drop, and it's worth noting that there's -- China has decided not to quote this official statistics. Because of COVID-19, the conflict between U.S. and China has further intensified lately. Given that we have the 2 giants of the global economy fighting, I don't think it surprised anyone that, at least at this juncture, our readings that the business environment globally will be very challenging, and it will affect all industries. Now because of these various different dynamics, as a result, the supply-demand dynamic of Grade A office have this -- sorry, I have to stress the Tower A is brand new, grade A office in Shanghai, one of the top cities in China. The supply demand dynamic of Grade A office has obviously turned to an unfavorable situation. Because of the economic challenges that we can -- China is now facing from the perspective of this asset project, lending markets and credit availability in China has been impacted. We understand from the investment manager that's been -- of course, since the consummation of this project, the investment manager talked intimately with banks onshore. However, what they have -- the banks have indicated or both in terms of, I believe, in terms of pricing as well as structure has changed rather abruptly, because of the sudden change in operating environment, where previously, they did not request a guarantee and now banks are requiring guarantees on loans instead of the previously declared, this is not required for pure asset back financing. Now this results in a funding gap. The equity that investors put up would be 30%. The original plan is to draw down 70% to complete the acquisition. Now this, of course, result in a funding gap, roughly 10%, which would mean require new equity injection. However, we have looked at the feasibility studies, et cetera, even from the investment manager, they have indicated that looking at current numbers, it is not economically feasible based on low project return, given a drastic change in expectations, obviously, revenue expectations, how clients -- what clients will pay in terms of the rent, given the multiple unforeseen events. For the investment manager, there is a sister project, Tower B, which is owned by Tower B investors, led by another fund under the investment manager. We currently have no exposure, no interest in Tower B. Now due to the tightening of the capital markets, this caused banks to reduce its lending, and there's difficulties in refinancing the offshore bridge loans given Chinese domestic assets, hard assets. Both Tower A investors and Tower B investors may not be able to close Tower A and Tower B acquisitions and run the risk towards purchaser default situations. Now this has not happened yet. But should this purchaser default situation occur, Tower A investors contractually required to forfeit 20% of the Tower A purchase price. Investment manager proposed an option to procure a new buyer to acquire 100% of Tower A and Tower B, both in the event that if only 1 tower is sold. The proceeds will be used to pay down existing loan. Now the proposal will require virtually unanimous approval of all Tower A investors and Tower B investors. The investment managers now is trying hard to find a new buyer. And should that happen, whichever tower is sold, the proceeds from -- the net proceeds from the investors will need to be rolled into the other tower, the unsold tower. We have not decided to vote for or against proposal at this moment. We know that the investment manager is actively marketing this property. And so far, there are interest from big Chinese corporations to buy out one of the entire towers. We will keep shareholders and investors updated of the situation in due course. It's a very simple outlook. It's a very complex situation. We generally do not have a crystal ball to predict the future. Global economy, of course, is very much affected by the U.S.-China relationships. The recovery will hinge on how various countries handle the end of lockdowns, and whether concerted effort to return to normalization will be implemented. Now while much uncertainty remains in the financial markets and geopolitics, the risk of overinvestment in maritime assets remain low, hence, is a plus for dry bulk shipping. So given all the overall supply for dry bulk shipping remains at historical low, we remain cautiously optimistic under a pickup in global economy in terms of volume of dry commodity seaborne trade. That's all from me, and I would appreciate if you can unmute yourself now if you have any questions.

[Wei Man Ching, Vice President]

Anybody has any questions? I noticed that I've been trying to unmute some of you. Just in case you do not know how to unmute. Hello? Okay, I will try this. Holly? Kelvin? Leo? Matthias? Tim? Erwin? Do you guys have any questions? Okay. I hope this is not because of the Zoom or I delivered too much bad news on this presentation. Of course, we -- I cannot promise anything. Of course, we here -- we always try our best to maximize value for the company. Should you guys have any further questions, please do not hesitate to e-mail me. And I will try to answer your queries promptly.

[Unknown Attendee]

I think there are questions on the chatting room.

[Wei Man Ching, Vice President]

No, I can only see one from Holly Birkett, and this is no question for me. Who may I know who this is?

[Unknown Attendee]

Yes, this is Leo. There's the name Matthias. Any comment on the cash flow?

[Wei Man Ching, Vice President]

Any comments on cash flow. Sorry, I saw that. No, I don't have any comments on cash flow. Despite it looks like that our current ratio is low, but no. We can sort out -- there's no cash flow pressures right now. We have facilities readily available.

[Unknown Attendee]

Can you share more details on the voyage charter revenue for this quarter?

[Wei Man Ching, Vice President]

Okay. Sure. Beyond March, obviously, you can see that the global economy actually suffered further. At one point, it was very depressed. As far as I can see in the overall that we had a few weeks where the chartering rate, the fee that we fetched, was slightly below cost, our breakeven level. But it has since rebounded quite strongly. This is why I'm saying that it looks like dry bulk shipping is a relatively brighter spot, given that we have gone through 10 years of misery. We have gone through a period where the overinvestment, oversupply situation has gone. It is now -- we are -- despite what's happening out there in terms of the actual dry bulk shipping market itself, we have never had a lower new building pipeline in the market. So from the -- just the industry dynamics alone, the oversupply risk is under control. The key question is how global economy will trend, will fare going forward. And how as soon, I believe that as the world starts to normalize, we all have to start going out again. We all have -- we cannot Zoom forever. Power stations has to run higher. Planes have to fly. All these points to our highest seaborne trade volume. It's a matter of when. Okay. Moto. In terms of capital allocation for the future, share buybacks, dividends, debt repayment? To be honest, I believe that you can understand by now the world is in such a fluid situation and increasingly so. In terms of share buybacks, dividends, no. There's no such capital allocations as of this very moment. In terms of debt repayment, of course, we follow the debt repayment schedule in a very form friendly. Capital allocation future. You can see that as long as we are -- if there's no any further buy and sell of vessels, the mix capital allocation in 2021 and beyond would be the ballast water tanks. We have no new building commitment right now, so there's no major capital expenditure. Okay. Scrubbers -- no, sorry, I will not aim for scrubbers in the future. The volatility in the low sulfur fuel has -- recently has shown that the price gap between low sulfur fuel LSFO versus the traditional bunker is actually minimal. There has been competitors in the market who actually were so scared of supply, which undertakes to commit to LSFO back in late 2019 for a price differential of USD 150 per ton are all suffering. So we are glad that we do not take that route. Scrubbers, no, we believe that as LSFO become more and more common, there will be ample supply. And the price gap will be -- will come down. It will be very manageable. Just like unleaded petrol for your cars. I have one more minute because this is the first time I use Zoom, so I did not use a purchased -- a paid service. So I'm limited to 40 minutes. So if everybody -- I would welcome your feedback to me by e-mail, whether you guys believe this Zoom experience is good. If so, we will continue to use it, and we use the paid service and make sure that I can talk for 3 hours if you want me to. Now if should there be any further questions, please you all know my email. Now you even have my Zoom account, you can actually -- please do not hesitate to contact me, and I will keep you guys update of all events as soon as possible. Thank you, Holly. Thank you all. Okay. Thank you. And goodbye.