Jinhui Shipping and Transportation Ltd

OSE:JIN

Earnings Call Analysis

Strong Freight Rates Boost Jinhui's Performance

In Q2 2024, Jinhui Shipping and Transportation Limited reported a net profit of $9 million and revenue of $41 million, driven by an 81% rise in chartering revenue. The average time charter equivalent (TCE) improved significantly, with Panamax fleet rates increasing to $17,702 per day from $4,719 last year. The company maintained cost control, with slight reduction in daily running costs to $5,396. With 23 owned and 10 chartered vessels, Jinhui's cautious optimism is supported by low supply of new vessels and robust demand. They plan to continue fleet renewal, balancing opportunities in the secondhand market and market dynamics.

Strong Financial Performance in Q2 2024

Jinhui Shipping and Transportation Limited delivered robust financial results in the second quarter of 2024. The company reported a revenue of USD 41 million, which marks an impressive 81% increase from the same quarter last year. Their EBITDA reached USD 21 million, and they netted a profit of USD 9 million, translating to earnings per share of USD 0.081. For the first half of 2024, total revenue was USD 69 million with an EBITDA of USD 34 million and a net profit of USD 11 million, improving earnings per share to USD 0.103. This growth can be attributed to a strong freight rate environment and increased chartering activities.

Significant Fleet and Chartering Improvements

In terms of fleet operations, Jinhui has made notable advancements. The average time charter equivalent (TCE) for their fleet soared 52% year-over-year to USD 13,407 per day in Q2 2024, compared to only USD 8,379 in Q2 2023. Specifically, the Panamax fleet averaged USD 17,702 per day, markedly up from USD 4,719, while the Ultramax/Supramax fleet averaged USD 15,110 compared to USD 10,360 a year prior. The company expanded its operational capacity significantly, increasing the average number of chartered vessels from 1 in Q2 2023 to 10 in Q2 2024.

Cost Management and Operational Efficiency

Jinhui demonstrated effective cost management, with shipping-related expenses climbing USD 5.4 million primarily due to the increase in chartered vessels. Interestingly, the daily running costs of owned vessels slightly decreased from USD 5,429 in 2023 to USD 5,396 in Q2 2024, mainly due to lower crude costs and effective control over operating expenses. This careful management indicates the company is positioned well to handle cost fluctuations in the future.

Legal Settlement and Its Effects

The earnings report also included a net gain of USD 1.7 million from financial assets at fair value, along with USD 3.5 million from a legal settlement pertaining to a dispute over a charter party. This indicates that Jinhui is not only recovering operationally but also seeing positive outcomes from past legal challenges, although future settlements are expected to be delayed due to their complex jurisdictional nature.

Debt Management and Financial Stability

As of June 30, 2024, Jinhui's secured bank loans stood at USD 64.7 million, with a current debt ratio of 7%. The current ratio is a healthy 1.2:1, demonstrating that the company maintains sufficient liquidity to cover short-term obligations. A net repayment of USD 23.4 million in bank borrowings during the first half of 2024 illustrates responsible debt management and commitment to reducing leverage.

Outlook and Future Strategies

Looking ahead, Jinhui Shipping remains cautiously optimistic about the supply-demand dynamics in the shipping industry. The management noted that while the supply of new vessels is limited, overall demand appears steady. Plans for fleet renewal persist, with the company acquiring vessels through a mix of time charters and strategic purchases. They have contracts for both new and secondhand vessels, indicating a proactive approach to optimizing their fleet and enhancing operational capabilities. However, executives expressed a vigilant stance on market conditions, as global economic uncertainties still pose potential risks.

Shareholder Alignment and Dividends

Throughout the earnings call, management reassured shareholders of their commitment to generating long-term value. While there were inquiries about dividends, executives emphasized that their primary focus remains on strengthening operational efficiency and financial health before considering dividend payouts. This reflects a long-term strategic vision that may ultimately lead to better returns for shareholders, albeit possibly with a delay.

Earnings Call Transcript 2024-Q2

[Wei Ching, executive]

Good afternoon to those in Europe and good afternoon to those in Asia. Thank you very much for joining 2024 Q2 and first half results presentation of Jinhui Shipping and Transportation Limited. If anybody cannot hear me, please type the message on and see if I can sort it out. I presume everybody can hear me Great. Okay. Thank you. Let's begin.

Quickly going through the highlights. Looking at just Q2 2024 financial highlights. Revenue for the quarter is USD 41 million; EBITDA, USD 21 million. Net profit for the quarter, USD 9 million. And basic earnings per share of the quarter USD 0.081. And if we look at the entire 6 months, first half 2024, Revenue for the period USD 69 million, EBITDA USD 34 million. Net profit for the period USD 11 million. Basic earnings per share 0.103. Gearing ratio as of 30th of June 2024 7%. I think it's encouraging to see that the Q2 has been picking up as we expect the freight market as well as the business is starting to gain strength.

So going to the highlights. The group reported consolidated net profit of USD 9 million for the current quarter and USD 11 million for the first half of 2024. Chartering revenue increased 81% and to USD 41 million for the current quarter, mainly due to a very strong freight rate environment. Reported Q2 2024 average TEC of the group split is significantly stronger than in Q2 2023. It increased 52% to USD 13,407 per day for Q2 2024 as compared to $1,132 per day for Q2 2023.

We achieved an average of USD 17,702 per day for Panamax fleet and USD 15,110 for the Ultramax Supermax fleet, for the current quarter as compared to USD 4,719 for Panamax and USD 10,360 for the Ultramax Supermax fleet for Q2 in 2023, a significant improvement quarter-on-quarter. Shipping related expenses increased $5.4 million, mainly attributable to the rise in higher payments upon the increase in number of chartered vessels during the quarter. The average number of chartered vessels in operation in the second quarter of 2024 increased to 10 vessels as compared to 1 vessel in the last corresponding quarter.

The daily running costs of owned vessels slightly decreased from 5,429 of 2023 to 5,396 as of Q2 2024. This is because lower crude costs incurred and a good pan our own back. vessel running costs has been well under control. Net gain on financial assets at fair value through P&L of $1.7 million and a settlement income of USD 3.5 from a legal dispute over the nonperformance of a charter party were included in the other operating income.

For those who have been following Jinhui for some time, this is regarding the Parco case. This is not the entire settlement because it involves a multi jurisdiction, there will be further settlement some to come in going forward. It is not coming in all at the same time due to multi jurisdiction and as we honor to put in a nutshell, legal process always takes time with the courts. Finance costs slightly increased to USD 1.4 million for the current quarter from USD 1.1 million of last corresponding quarter as a result of recognition of interest expenses on lease liabilities of [indiscernible]. As at end of June '24, secured bank loans amounted to $64.7 million. Current portion 15.2%, long term, $49.5 million, respectively.

During the first half of 2024, a net repayment of USD 23.4 million of bank borrowings were repaid. To further enhance and improve fleet profile while limiting the capital expenditure of acquisition of vessels, the group entered into time charter engagements time chartered in during the first half of 2024, with total carrying capacity of approximately 705,000 metric tons.

As at 30th of June 2024, 23 owned vessels and 10 chartered-in vessels are being operated. -- total carrying capacity of approximately 2.02 million metric tons. We have contracts to acquire a 2012 built Capesize at a consideration of $31 million. The vessel was delivered to the group in August 2024. We also contract to acquire a 2019 built Panamax at a consideration of $31 million. The vessel was delivered to the group in May 2024. We entered into 2 shipbuilding contracts for the construction of 2 Ultramaxes each at a consideration of $34 million to be delivered in 2016 and 2017. And subsequent to reporting date, the group entered into contract to acquire a 2008 built Capesize at a consideration of $24 million to be delivered in the fourth quarter and 2024.

This is the summary of the financial highlights. I believe we -- you are all proficient in reading the financial statements, so I won't go through this. As of Q2 2024, total assets stands at USD 488 million. Net equity USD 360 million. Secured bank loans, $64.7 million. Current ratio 1.2 to 1. Net gearing, 7%. Working capital of USD 10 million. Available liquidity at just below USD 40 million. This chart is just showing how our fleet has been evolving. We always look to actively manage this fleet profile in accordance to our expectation actually or even the prevailing market conditions, we just have to react sometimes.

The next slide is the list of our 24 owned vessels, a total carrying capacity of 1.4 million deadweight metric tons average age of 13.6. In terms of chartered in, [indiscernible] 2 Panamax long term, 2 Ultramax, Supramax long term. For short-term chartered i.e., below 12 months, Panamax 1 and Ultramax Supermax 4 and also have shown you the names of the long-term chartered vessels. The total carrying capacity or dead rate, sorry -- not carrying capacity, the debt weight of these chartered in the vessels, 610,000 deadweight metric tons.

[indiscernible] mortgage loans were fully repaid in the first half of 2024. We currently have USD 64.7 million of secured bank loans. As of Q2, 24% of this amount will be repayable within the next 12 months and 76% within the next 2 years. As of Q2 2024, total volume in tons of cargo carried by the fleet is 5.3 million tonnes, 55% Minerals, 13% steel products 11% cement, 10% coal, 6% agricultural products, 1% fertilizer and 4% other various cargoes.

In terms of loading ports, 56% of the cargoes are loaded in Asia, excluding China, 19% South America, 18% China, 2%North America, 3% Africa and 1% Europe, 1% Australia as well. In terms of discharging 51% of our cargoes are being discharged in Chinese ports, 38% in Asia, excluding China, 5% North America, 2% Europe, 3% Africa and 1% Australia.

And here's the TCE of our fleet. If we mentioned -- talked about the Q2 numbers, let's have a look at the first half 2024 compared to first half 2023. For the Panamax fleet, 17,478 million over the course of 6 months of 2024 as compared to $8,894 of the corresponding quarter in 2023. I 1,560 for Ultramax/Supramax in first half 2024 versus $8,357 million in the first half of 2023. So if you look at all these numbers and we average them -- look at the average of the entire fleet, 13,939 versus 8,379 million for the first half in 2024 compared to the corresponding 6 months in the previous years.

It showed a significant improvement. We hope that going forward for the rest of the year, it will show continued strength. We've been putting a lot of effort in controlling costs. And of course, with the COVID over, the cost starts -- the cost side of the business starts to edge down mainly due to crew costs or all those additional cost in relation to COVID at various ports. For Q2 2024, the running cost per day, $5,396. Again, we managed to shape a little bit down as compared to Q2 2023.

In terms of outlook, when we look at the supply and demand of our industry, supply of new vessels is currently low. We see that demand side is steadily robust, and we are cautiously optimistic on the outlook. I guess our actions also speak for itself. Hence we have been chartering in vessels acquiring vessels to increase our fleet profile.

[Wei Ching, executive]

I have questions from one of the shareholders who e-mailed me saying that our target is to renew our fleet to lower the age. Yes, it remains to be so. However, sometimes when we see opportunities in the secondhand market where we can buy attractive secondhand vessels, we have to be flexible in terms of what is available or what our expectations of certain sector of vessels is going to be. Sometimes we may deviate with our plan. I always stress that we are not like a manufacturing company. We don't get orders from Apple on how many units of iPhone and increase our manufacturing line in accordance to orders. We can't do that.

We have to be flexible. A lot of time we have -- we just have to be very nimble and react to how market changes. Despite our recent activity in the secondhand market, we have been slowing down. Firstly, we've been spending a lot to acquire vessels. Obviously, you can see. At the same time, we see that secondhand values are strong, maybe a little bit too strong right now.

And we see signs of dislocation of -- between asset values and freight rates. -- we'll have to see -- see more indication or signs or we will have to read into our lives to see that to see more clear signs that the freight rates are gaining strength before we make further decisions.

At the same time, when we look at the overall world, we are still seeing very signs of uncertainty. The overall global economic growth is kind of in a fragile footing. And of course, the geopolitical risk, all these disagreements, sanctions and tariffs, we are mindful of these risk factors. So we are trading forward very carefully. Having said that, we will always continue to look for opportunities to try to renew the fleet

And general [indiscernible] for our shareholders. Thank you, Tal. Thank you all for asking this question. We'll be considering to sell certain ship or ships or older ships in our fleet. But again, I hope you are on our side, I can't bring out a microphone and scream at the market. So I hope you can be a little bit more sympathetic in terms of I'm not going to tell you, hey, this is what we're looking to sell. That is what we're looking to sell. No, I'm afraid we cannot do that. It's like streaming a potential buyers. Our interests are aligned. We are trying to -- when we're going to buy the source, we will try to buy the best cheapest vessel.

At the same time, we also try to fetch the highest value in the market. So we can't announce to the market with the microphone.

What is the ratio of short-term rentals, long-term rentals? I think we already said that there are -- if we look -- if you look back at Page on second, here. So there are 10 vessels right now for them and long-term rental wins or chartered in, we call them. I need to look.

Why not utilize transact market to sell off some assets and pay a healthy dividend? Good try, guys. I cannot comment on dividends. I think we -- again, if you ask these questions, I will also have to give you a very standard answer. We have to first think about the long-term plan of the operations business, what we're going to do going forward and balancing also in paying dividends. We have -- in terms of access to credit, we have good access to credit. I think if you look at our debt profile, it is not ideal right now. We are aware of that. We will be replenishing our or topping up our balance sheet in due course. We do not go to the capital markets to issue debt. We are very old school. We go to normal banks to look for lending facilities, and we have good relationships with a number of banks.

So I think I'm not going to comment on certain geographical location. But I think if you look at our loading port and discharging pattern, you would have noticed that we have increased our presence in the further corners of the world where we used to very much focus in Asia alone. And we are now -- our footprint is crossing over to other other corners of the world, including South America and Africa.

Anthony will generally operate more chartered in vessels in the future. Again, we will have to be opportunistic about this. So I can't give you like a concrete answer and say, yes, what is this becoming too expensive to charter in, right? So it actually depends on the market, what we see from our customers, and we will react accordingly.

Right now, well, it is profitable. The range of -- I'll give you an idea. The cost of chartering in these vessels range from USD 14,000 per day to around USD 16,000 per day. Actually for the larger size, even USD 18,000. So yes, overall, they are profitable. But when we do -- when we buy -- when we do these, I'll call them bolt-on acquisition, if you like, in the FMC finance term or asset.

When we do asset purchases or even charter in vessels is because we see we see the freight market strengthening. So it's more like laying out the test pieces to reap the benefit going forward. They are not hugely profitable right now, but it's positive, but we are making these moves for future for going forward if you understand what I mean.

I think I can't give you the exact time of these long-term charters. I think every single long-term charter that we have made announcements, so I urge you to refer to those announcements. For example, current member exact time. For example, the Tajo circular, I think it was like for 4 years, some 4 or 5 sorry, the exact period doesn't -- is keeping my mind and I have a pile of paper on me. So I'm not going to tick through if you really can't find the information e-mail me, and I'll answer you then. We are not doing too many long-term charters. We are putting a limit on long-term charters. And because for those who are proficient with your accounting rules, too long a charter, it will create a huge long-term liability on the balance sheet.

And this is not something that we want. At the same time, I think we have gone through, thick and think, the good times and bad times in shipping, we still remember how painful it could be when long-term charter fails. It's all getting messy. There will be charter disputes, all these legal cases. So we pick our charters chargers sorry, we pick our partners in terms of chartering all charter out very, very, very carefully. And when it comes to long-term charter in or maybe in future long-term charter out, we are very, very careful with that.

No, we are not considering or we have no current plans of listing out the chartering business in a separate area right now. But I hear you. My apology, I mean listening in a separate business area and the accounts. I'll reflect this to -- within the company on that. But I think we have been reporting like this and -- if you read into the financial statements, the numbers should explain.

Again, though, we also -- I appreciate that you want to know absolutely everything. By the way, I had some funny food for lunch if you want to know. But I can't tell -- we cannot write everything in our financial statements because our competitors are reading to do it. So we have to operate within the accounting rules and disclose as much as possible so that the shareholders can understand what's happening, but without our competitors reading into the tea leaves.

If you look at our annual report, you will know the list of banking relationship. Those are our primary lending banks. And I have no comment on discounted NAV at the moment. If you ask me about the discount to NAV, then 1 of the comments that I can make is that -- the fashion is to invest in technology stocks.

I mean, I think I understand from your perspective, strategy to improve the discount to NAV. We're doing everything to mix to profitable -- it's only a few years back that we came out from shipping came up from the very, very dark corners. We -- we're trying very, very hard make sure the company is profitable as well as financially stable. We hope we can attract shareholders who will share the same view and we'll stick with us. But we're working very hard. We hear you. Discount to NAV dividend. We know that and we hear you. We hope that you guys can be patient. And I hope that I can bring these good news to you in the coming quarters. question.

Okay. If there are no further questions, I'll call an end to to the presentation. Thank you so much for attending. I want to say stress again Jinhui and all shareholders or interest are all aligned. So we hear you about NAV dividend, et cetera, we're doing everything to generate value for everyone. And we'll continue to work hard and fingers cross. I will bring good news to you in coming quarters. Thank you very much for attending Good evening, and good morning again to all. Thank you.