Jinhui Shipping and Transportation Ltd

OSE:JIN

Earnings Call Transcript 2022-Q2

[Wei Ching, executive]

Okay. Good afternoon to those in Asia, and good morning to those in Europe or Americas. This is Raymond Ching from Jinhui Shipping and Transportation Limited. Thank you for going online to the Q2 2022 results presentation.

I'm sharing the presentation on screen, and I believe you would have all read the -- had a copy of the results announcement, so I shall begin.

I will jump straight into the financial highlights. We have recorded USD 51 million of revenue for the quarter and a net profit of USD 20 million for the quarter. Free cash flow at USD 30 million, and we're happy to report that basic earnings per share at USD 0.186. Gearing has captured a very, very low level at 1%. And we have announced an interim dividend of USD 0.03 per share.

For Q2 2022, our chartering revenue has increased 59% to USD 51 million. The market freight rates was very, very strong, and we also had a number of new vessels increased to our fleet compared to the previous quarter. The average time charter equivalent in Q2 2022 was significantly stronger than that a year ago, and that increased 38% to USD 26,397 per day.

There was a net gain of USD 4 million on bunker that was recognized during the quarter as compared to $0.5 million in last corresponding quarter. Please note that the mode of contract that we conduct our business is time charter contracts. So this is more of an accounting gain. If I give an example, for example, let's say, when in the previous contract with the customer A, I gave them a full tank of bunker. And at that time, bunker was at 1 -- let's say, $200 per ton. By the end of the contract, they need to refill it up back to me. But if there's a price change, let's say, $300 per ton of bunker and they fill it up back to me, this bunker belongs to me. So I would record this value of bunker gain is not really like an expense.

There's an overall increase in shipping-related expenses mainly due to increased in vessel operating expenses such as crew costs, other pandemic-related manning expenses as well as an increase in number of owned vessels compared to the last corresponding quarter. COVID-19 continues to have a cost effect, of course, on the increase in cost side, especially with respect to crewing.

A net loss of USD 4.5 million was recognized in the Q2 on the financial assets at fair value through the P&L as compared to a net gain of $1.6 million from the last corresponding quarter. There was a fair value loss on investment properties of $0.8 million as compared to a gain of $0.8 million for Q2 2021. So we're back to the value in Q2 2021. Our bank borrowings decreased due to repayment of $18.3 million during the quarter. A total of USD 4 million was spent on dry docking as well as the installation of the ballast water systems.

During Q2, we entered into a charterparty for the leasing of a newly 2022 build Panamax, we call it -- actually, it's actually Kamsarmax for 7 years, and the vessel was delivered to the group at the end of June 2022. The chartered-in vessel obviously increased the carrying capacity of our fleet profile with very little capital expenditure. During Q2, we also contracted to acquire a 2014-built Supramax at the consideration of $25.5 million, and this was delivered in July.

So the next chart is a full summary of the financials. I think it, overall, is pretty much self-explanatory, so I'm not going to go into -- through the details.

As of end June 2022, the key financial ratios are as follows. The total assets has increased to 600 and -- if I rounded up, almost USD 606 million. Secured bank loans is now at just below USD 77 million. The current ratio is 1.61:1. The net gearing is at 1%. We have USD 44.5 million of working capital and $70 million of available liquidity. The return on equity at 4%, and the return on total assets is at 3%.

Right now, we are at 20 -- our fleet is at 25 vessels. And here is the schedule of the 25 owned vessels, 2 of them are Post-Panamax and the rest are all Supramax. We still believe that the Supramax vessels are the most flexible, and it has proven especially lately. So you can see that the larger vessels are under pressure, especially the Capesize is under pressure, but the Supramax on a relative basis is still much stronger than the larger sectors. The average age of our fleet is 13.3 years old. We have 1 chartered-in vessel, as described before, it's called TAHO CIRCULAR. It's 84,000 deadweight tonne vessel. We hope that, over the long run, it will give us a very, very good cash generation power. Out here is the list of vessels that we have installed ballast water systems. More will be coming.

In terms of the debt maturity, 57% of our debt will be repayable within 1 year, 23% will be repayable within 2 years and 20% within the next 5 years -- between 2 to 5 years. In 2021, as of Q2, obviously, we have reduced the debt. So 54% will be repayable within 12 months, 30% of that will be repayable within the next 2 years and the remaining 16% will be between 2 to 5 years.

In terms of the cargo volume, obviously, with a larger fleet and a very buoyant market, we have carried more cargoes. As of Q2 2022, we have carried a total cargo volume of 3.298 million tonnes, which is significantly above what it was the amount that we carried as of Q2 2021. 87% of that are minerals, 8% coal and 5% steel products. We very much concentrated in the Asian trade, 92% of our cargoes are loaded in Asia, excluding China; 6% of our cargoes are loaded onto our ships in China; and 2% from Australia. On the discharging side, 86% of our cargoes are destined to be discharged in Chinese ports with the remaining 14% in Asia.

The time charter equivalent of our fleet as of Q2 2022, for the Post-Panamax fleet, $23,171 per day, which is a significant increase relative to Q2 2021. A moderate -- well, it's also a good increase relative to the full year 2021 figures as you can see. For the Supramax fleet, TCE is $26,544 as of Q2 2022. So the average is about USD 26,397 per day.

On the running cost side, of course, because of COVID and other various reasons, inflation, et cetera, running cost has increased. We've tried very hard to keep this as low as possible. But however, as of Q2 2022, the running cost has increased to USD 5,924 per day relative to Q2 2021. That's almost $1,400 increase. Depreciation has also increased because of an increase in vessels -- increase in newer vessels as well, USD 3,830 per day. Finance cost has kept low at $136 per day.

We hope that with as the -- hopefully, as the problem that COVID has caused will slowly subside and this -- there'll be more room to drive the cost down going forward. But this will depend on the development of the COVID or, let's say, it's the procedures or policies with various countries or various ports has implemented in order to battle the COVID spread.

In terms of outlook, we've had a very, very good first half for 2022. As much as we don't like to say, but we expect the next -- going forward, the market will soften and that's already softened. I think, overall, with the interest rate cycle, where U.S. dollars interest rate cycle especially, inflation is affecting all industries across the globe. There's an overall expectation, anticipation of a softening of the global economy. So for our business, for the dry bulk shipping, we are not sheltered. We expect the dry bulk demand to weaken in the second half. And probably going forward a little bit more, it will soften because of this backdrop.

On the positive side, we expect the freight environment to remain healthy. We believe there will still be a very, very robust demand for raw materials, especially energy related. So for the dry bulk shipping, we talk about coal. We are talking about other mine above demand for specialized industrial reductions. We expect the volume that needs to be transported around the globe will remain very, very healthy. This is, of course, because of a very favorable supply side, where new building orders are kept low. In fact, it has never been this low for many number of years. So there's a very favorable supply side that gives a very good support of freight rates.

Of course, if there's anything big, major, I don't know, some huge force major events beyond our control, then that's another story. But overall, we expect, although it's a softening economy, although the freight rate is expected to soften, it will be still fairly healthy. And if there are any further icing on the cakes, it would be additional infrastructure investments from -- or the resumption of real estate construction in China, for example. Beyond China, let's say, if there are further infrastructure investments in other areas, in other minor developing economies, I noticed that United States have also want to do further infrastructure for themselves as well as to help developing countries, this may deliver further upside for our -- for dry bulk shipping.

As I mentioned before, there's a very limited number of newbuilding orders, which gives a very strong footing in terms of the supply side, which is in favor of shipowners. And this is mainly due to the uncertainty over environmental regulations from shipowners' perspective. If we are to invest into new ships in any meaningful sense, we need to have certainty of what the regulations will be and what will be the most suitable designs, I mean, for engines of our ships, et cetera. Right now, there is no consensus. So in general, ourselves and our -- other players in the market, you call them our competitors or friends, most of us are shying away from doing any meaningful newbuilding order.

Adding to that, I can see and also feel that because of the softening of the global economy due to the monetary policies as well as geopolitical events, the investment appetite has weakened. And because of the volatility is to be expected going forward, we will remain very alert and very, very careful. We'll evaluate each opportunity individually, and we -- the situation going forward will be very fluid. We will just have to be very, very careful and consider each opportunity that we come across very carefully and evaluate the potential risks as and when they occur or I mean as and when these opportunities occur. And we'll try to renew our expectation of the future as -- at that point in time and decide whether to invest accordingly.

That's all from me.

[Wei Ching, executive]

And if you have any questions, you can either speak up or type on the Zoom. You can type your questions out, if you want to or please fire away.

No one have any questions?

So all, not even you have questions. That's a surprise.

Well, I hope everybody is happy with that. We have a dividend at the interim. We hope to deliver further good news for everyone. Hold on, there's a question.

Energy efficiency. We have been doing everything like other shipowners would do in terms of energy efficiency. Let me highlight them, hold on a second. In terms of energy efficiency, it's mostly about the IMO 2020 regulations, EEXI. So in terms -- we have been doing various works from engine power limitation, energy efficiency technology and retrofitting alternative propulsion.

So what -- to put it short, what we have done? In fact, we have installed on pretty much most of our fleet. I don't have the number right now. In terms of energy efficiency, the very usual suspect, Propeller Boss Cap Fins. This claims to save up to 3% of energy. Pre-swirl fins, up to 2%. Modification on the engine to make it more energy efficient. We have done all these.

If you're talking about the CI carbon intends to indicator, we have already adopted the SECMP, 2 in operations and have implemented a series of operation procedures and show the operational efficiency of our vessels. When these procedures include weather routing, it will save, well, up to 5%; speed optimization of ballast and trim, this will save between 1% to 4%; better anti-fouling paint; we make every effort to improve the core turnaround time; the efficiency control of HVAC; improve machinery maintenance; optimizing our purifiers, I consider -- even this maximum can save up to 0.2% in terms of energy costs. But we do all these recommended procedures. So we're doing everything we can in order to be environmental friendly.

Could we consider higher dividend, share buybacks since your equity trading for below book value? I will reflect this to my boss to the Board of Directors, and we'll announce any actions if any of those corporate actions are to be -- to take place.

Q3 TCE, around what level? I'm afraid I cannot tell you right now. Q3 is still not over, Kevin. It will be -- I'm afraid it will be lower, to be honest. It's no secret. All you have to do is you look at the Baltic Supramax index. It is not as high as before. It will be lower. But we will -- I would -- I am -- all I can say, I'm confident that will still be profitable. You guys are all very smart people in equity investors. The share price has reflected a low -- a softening of sentiment and a lower freight rate. It will be lower. That's all I can say.

As I said, there's a lot of expenses. It's due to COVID related. We have a larger number of ships. It's having to repatriate a crew. It's very, very expensive nowadays, changing crews are very, very expensive nowadays. The fact that we have kept utilization at pretty much maximum is, to me, I would call this a miracle. We have to do a lot of persuasion to ask our crews to stay for as long as possible, but there will always be a limit. So no matter where they are, it is up to the end of a particular contract. They need to go -- they need to rest onshore. And the cost of repatriating every single -- each and every single crew, make sure that they're tested, they're COVID free, make sure that they comply with the COVID regulations procedures at each port. It's very, very, very expensive. Think about it before. It's -- you're just talking about repatriating a crew, give the transportation, ship, send them to the airport, they go home. That's it.

Now it's COVID tests. If they -- if -- then they will be quarantine 7 days here. And then back home, there will be another. If certain countries like China is -- before, at the MAX, it was 21 days and it was 14 days is a very expensive exercise. This is why we have said that we hope that the COVID restrictions would be over. We are already fairly on the -- try to keep this cost and kept on the lid. Some -- if we tramp our vessels to other, further away to Europe, to North America, the cost will be crazy. A plane ticket is also more than -- a plane ticket is tripled.

Okay. If there are no further questions, I'll close this event. Thank you very much. We hope to deliver further good news in the next quarter. Thank you, and have a good day in Hong Kong, and good morning in Europe and Americas. Thank you.

One more question. No? Thanks. Okay, thank you.