Jinhui Shipping and Transportation Ltd

OSE:JIN

Earnings Call Transcript 2020-Q3

[Wei Man Ching, Vice President]

Good morning, and good afternoon to all of you, ladies and gentlemen. This is Raymond Ching of Jinhui Shipping and Transportation Limited speaking. Welcome to the Q3 2020 results presentation. Can you all hear me? I hope you can all hear me. Please let me know if you cannot hear me on the chat room, please. There's a couple still to join, so I'll wait for them. I'm admitting further participants. Okay. I believe you all have read the results, and I shall begin. To go through the highlights. Of course, we are actually -- sorry, somebody just said they cannot hear. I'll check. Let me check who cannot hear me. There should be -- a couple said they cannot hear me. I wonder if they have -- I cannot see a mic -- microphone on. I think it should be fine now. We're in a very, very challenging and strange 2020, I believe, for all of you. Despite that, I think we are all trying to survive in this very strange environment. For us, Q3 2020 financial highlights, the revenue for the quarter records at USD 14 million. For Q3, we have recorded a profit, USD 0.9 million profit. EBITDA is at USD 5 million. And we have a basic earnings per share of USD 0.008. Gearing ratio as of 30th of September 2020 stand at 20%. I believe one can imagine why the gearing has gone up due to the asset side here reducing because of fluctuation in the markets of carrying value of our assets. We recorded a consolidated net profit for current quarter mainly due to a decrease in net loss on financial assets at fair value through profit or loss as compared to last corresponding quarter. There was a realized gain of USD 0.4 million from financial assets at fair value through profit or loss as compared to a realized loss of USD 1.6 million from last corresponding quarter. There's an increase in interest income and was attributable to the stable interest income generated from loan receivables during the quarter. We repaid USD 3 million of bank loan during this Q3. And in terms of risk management for our nonreceivables, we have requested top-up repayment of loans in accordance to the facility agreement and such top-up led to the decrease in loan receivables during the quarter. I believe you noticed that the loan receivables we're talking about are the loans extended to borrowers with ships as their collateral. We acquired a Supramax at a consideration of USD 4 million in July 2020. During this quarter, we received a further update from the investment manager of co-investment, the Shanghai property, on 21st of August and that due to unexpected COVID-19 pandemic, which has affected various business, the vendor of Tower A has agreed on the extension of the closing of acquisition to November 2020. We will update all shareholders on any significant investment update timely and accordingly. As far as we know, been updated, this transaction is still going forward. We have not heard any negative news or surprising news on this front. It has gone ahead. The project was able to close. In terms of financial highlights for the quarter and the 9 months ended September 30, 2020. We've just gone through the Q3 numbers, so let's have a look at the full 9 months 2020 unaudited results. For the full 9 months, end September 2020, revenue recorded at USD 31.981 million. Accordingly, there's an operating loss of USD 8.9 million before depreciation, amortization and finance costs. The operating loss stands at USD 20.226 million. Finance costs at USD 2.576 million. Net loss for the 9 months is USD 22.8 million, resulting in a basic loss per share of USD 0.209 per share. But of course, if you look at the Q3 numbers, I believe the operating environment as witnessed by the numbers is improving. In terms of the finance ratio. As of Q3 2020, total assets is at $366.4 million; secured bank loans, USD 118.59 million; a current ratio of 1.21:1; net gearing at 20%. Working capital is at USD 16.928 million and the available liquidity at USD 71.559 million. Because of the acquisition in June, we now have 19 vessels in our fleet. The next slide is the list of vessels that we currently own. You'll notice that majority of them are the Supermax with 2 Post-Panamax in our fleet. The average age now stands at 12 years old. This slide shows the list of vessels in terms of the requirement to install the ballast water management systems and their due date. Two of them will have to be installed in by 2021, 15 of them by year 2022, one by 2023 and one final one in year 2024. So we have a pretty good lead time in terms of the installation of ballast water management systems. As of 30th of September 2020, we have a total debt of USD 119 million. 51% will be repayable within 1 year, 13% will be repayable between 1 to 2 years, 36% will be between 2 to 5 years and none over 5 years. In terms of cargo volume, 88% are minerals and 12% coal. The total cargo volume is 2.269 million tonnes. This is a drop from the volume in Q3 2019 due to lesser number of ships as well as the business environment. In terms of the trading pattern, 87% of the cargoes are loaded in Asia outside China and 13% out of Australia. Maybe I'll go back on this slide. I guess, to a certain extent, we are, as a company, is fortunate that we are not -- it happens at this juncture, we are not doing too much business out from Australia given the political disputes between Australia and China. In terms of discharging port, 93% of our cargoes are discharged in China; and then 7% in Asia, excluding China. Time charter equivalent. I think we are seeing an improving trend. If you look at the quarterly numbers. As of Q3 2020, the -- for the Post-Panamax fleet, the TCE is USD 11,805 per day; Supramax, USD 8,386. On average, USD 8,713 as in Q3. If you look at the 9 months, 2020 numbers, it's lower, obviously, because in the first half of the year, as you would all know, it's very, very tough, but we do see an improving operating environment as the virus. Although the numbers of affected cases all over the world sees still seem high and it's very volatile, but overall, I would think the trend is that countries' governments are getting to be better in that in terms of putting it under control and there are positive news that there will be vaccines rolling out very soon. So we remain cautiously optimistic on this front. And in terms of business inquiries, I think we do see that the confidence is slowly building back up, which was previously hindered because of the COVID situation. In terms of running costs for Q3 2020. The cost of running our ship in total is USD 5,788 per day. $193 of that is finance costs, $2,109 is depreciation and $3,486 is the running cost on average for our fleet. This is a reduction compared to Q3 2019 last year. But, of course, for the full year -- actually, as well as a drop from the full year 2019. We continue to try very, very hard to keep cost in check, squeezing out as much shavings off the cost side as much as possible to squeeze in positive cash flow and hopefully profitability very, very soon going forward. The next 2 slides I would like to highlight to our shareholders. This is something we look at very intimately. The biggest risk within the dry bulk shipping industry is the supply side. And if we look at the statistics, the investment in dry bulk newbuildings is now back at a historical low. The way we see it, it's -- the reason behind that are multiple thoughts, of course. Obviously, the newbuilding supply was very, very high back 10 years, 12 years ago. The number of orders were, on hindsight, absolutely irrational. And as a result, investors, owners were all hurt. Financiers all felt the pain. There's a general unwillingness or probably shy away, scared, fear, you name it, in terms of ordering for newbuildings. But more importantly, apart from the fear side, apart from the available maritime funding side, regulatory changes also plays a very, very big part, which is, going forward, the environmental regulations in terms of commercial ocean-going vessels is getting stricter and stricter. This year, the low-sulphur fuel has kicked in. Ballast water management begins to kick in. And then in terms of emission, the industry regulatory bodies are pushing, especially out of EU, is pushing for zero carbon going forward. Now this poses a big challenge for shipyards as well as owners as well. So what will be the new generation type of vessels? What would be the next-generation engine to achieve this very, very tough emission target? Given that there's no consensus and there's a lack of general funding in terms of achieving this next-generation ships, unfortunately, we do not have a Tesla in our space, owners are generally shying away from ordering new vessels, which the ones that are being marketed by shipyards right now, in general, are still the old diesel-engine models and that does not achieve zero carbon. If we look at the fleet growth in terms of existing fleet, this is even lower. Right now, the newbuilding supply is for all the sectors from Capesize, Post-Panamax, Supermax, Newcastlemax, you name it, all dry bulk vessels, the order out there is 6.29% of the existing fleet. Not to mention quite a good bulk of the existing fleet are aged tonnage, are -- which readily will go to scrap in the coming years. The supply is very much in check. Now given the -- how inelastic the dry bulk market would react to any supply-and-demand imbalance, we remain cautiously optimistic of the outlook. Overall, we see several factors going forward and it looks to be on a more positive side. There's a recovering demand with slowly easing COVID-19 worries. And as I previously mentioned, environmental regulations would lead to uncertainty in the next-generation technology for commercial ocean-going vessels. This leads to low investment appetite. From a financing perspective, maritime funding remains to be available only on a selected basis. It's not like the old 2010 or starting from 2007 where there's a rush -- there was a gold rush to shipping where anybody could obtain credit relatively easy. This is not the case. Easing geopolitical tensions on the horizon. With U.S. elections coming to an end, we are hopeful that things would revert back to normal. There will be less arguments in the world, and business will begin to revert back to normal. This is all I have for today. Should you have any questions, please fire away.

[Wei Man Ching, Vice President]

[Operator Instructions] Okay. I have a question from [ Leo ]. What's the change behind the drop of daily running costs for 3Q compared to 2Q? To be honest, it's pretty minor stuff, which added a -- which adds up. Frankly, if you can imagine, for example, spare parts, paint, et cetera, all these nitty-gritty stuff, the bill doesn't come in regularly. So there will be quarters where we have to pay off what is owed to our suppliers and they all come at the same time, which would generate a higher cost; and at certain quarters, it will drop. I think this $3,600, $3,400, it kind of hovers around that level. But of course, we are fortunate that our, how shall I put it, our crew has been especially understanding within this period where they have not been requesting crew changes in ports, which are very, very costly for us, for example. So a lot of our crew, most of them, they bite the bullet and work hard. And also on this front, we actually save a lot of money. For the -- since the COVID situation happened, a lot of our competitors have been spending extra expenses in order to repatriate crew when there's a crew change. We have been doing a little bit better on this front. But of course, all the other various shavings, it's very hard for me to tell you because it's all so nitty-gritty. It could be from the paint for regular maintenance onboard to the tools in the engine room, to gloves used by our engineers, to ropes, to wires. So in general, because of the business activity, it's also somewhat less busy than before. All these factors contribute to a drop in the [indiscernible]. TCE at present. It's a bit of a forward-looking statement from a -- on the side. But it is -- right now, it's, I will say, it's a slight improvement from Q3 and we are seeing the market upticking slowly. It's not a big jump, but upticking. Investment strategy for 2021. To be honest, in terms of investment strategy for 2021, right now, we don't really set a particular plan in place, but we'll be -- given the supply is low, I think we would be looking very, very carefully at the S&P market, whether there would be any value in terms of second-hand vessels. We will not be ordering newbuilding in the meantime, though. Got you. Share buyback, dividend policy, we noted. I will also highlight that a lot of a lot of [ companies ], be it in the shipping space or various traditional industries are trading at value -- trading at very depressed prices. On share buyback and dividend policy, I am not in a position to say. All I can say is, right now, we do not have any plans on these 2 funds. We will announce to the market should the Directors -- or the Board of Directors decide to any changes in terms of this front. But right now, you can see that the flavor of the equity market is on growth. If you look back in the past 10 years, unfortunately, in a very low interest rate environment, value doesn't seem to be a good flavor. Overall, everybody pausing on the growth. I believe you all know what I mean, given that you guys are all equity investors. Can you please explain the real estate investment? Can we expect more real estate investment in the future? The real estate investment, I believe you're talking about the current quarter and the $19.5 million Hong Kong one. Hold on a second. Actually, maybe we were unclear on the presentation. But if you look into the actual announcement, the investment of that $19.5 million property, it was actually canceled and fully refunded. Going forward, I think we'll be very, very careful in terms of -- we have no plans for any further reinvestment -- investments in the immediate future. Okay. The Shanghai project. Yes, it's going forward. The managers will, of course, be very actively marketing. Now that the transaction is completed, as far as we can understand is that they will be actively pursuing interested parties in terms of tenants and we'll start filling up the property. Hopefully, we will hear solid information on that front and we'll let you guys know it accordingly. What are we doing with all excess cash, which is now accumulating in banks? A better -- okay. Hold on a second. I think, right now, in this environment, apart from on -- we have talked -- we have used part of the cash and there's some investments. Obviously, early on the year, there was a correction in the market where I believe nobody expected. Those investments are recovering. But other than that, we will try and maintain as much liquidity as possible for any opportunities in the dry bulk space going forward. The development of the security market stocks that we have in there. As you can see in Q3, we -- as explained, there's mark-to-market loss from previous quarters coming back up. We're turning in a positive number at the bottom line. We see this -- my apologies. I think it's -- there was a time limit on the Zoom. My apologies on that. I've been using the free version. The security portfolio. I think, as you can see, the Q3 numbers, we already -- I already mentioned in the presentation that the security portfolio has improved. The mark-to-market losses has recovered and we expect them to recover going forward. With the virus situation as well as the political tensions recovery, I believe we're in a good position. Majority of them are listed in Hong Kong, maybe a small amount in the U.S. Also some bonds, mainly large caps. Yes. I mean, this is exactly what we are looking at, but we are being very, very careful in terms of scouting for good quality but value-to-money secondhand ships. Yes, in terms of aging fleet. Our fleet is aging, it's now 12 years old. But to be honest, we always have to weigh the pros and cons between a very, very young 3-, 4-year vessel. The cost of buying one versus -- is there -- the premium they are earning. A lot of the asking price right now in the market do not, in our point of view, in our perspective, does not [Audio Gap] kind of technology will the next-generation dry bulk vessels be using. We will shy away from one newbuilding or actually even on secondhand 2 younger ships. I don't see -- we don't see any reason to pay too much, let's say, for a 2-, 3-year old, 5-year-old ship right now because 5 years, 7 years down the road, technology requirement or the regulatory requirements would mean that they would trade at a discount. Yes, as far as we're concerned, the fair value is correctly represented in the balance sheet right now. No, I'm afraid I'm not going to comment on P/E value of the stocks. That's your job. No, not commenting on the P/E value of the stocks. As I said, we know it's undervalued right now. And so there's a lot of value old industry stocks. I have already commented. Many old industry are trading at a discount.

[Unknown Executive]

It's trading at a discount here.

[Wei Man Ching, Vice President]

As far as I'm concerned, there are several factors that are holding back scrapping. One, everybody is seeing the supply is low, so they try to squeeze as much as possible out of the old buckets. But I also hear that in the scrapping market that because of the COVID situation, for example, Bangladesh, things are just not going as smooth as they should be. Any special measures to unlock the true value of the company of the shares? I know you're talking about share price. We will timely inform the market if there are any special corporate actions on that front. I will ask the Board of Directors to let me know what I can say and what I cannot. And I will reflect your comment to the Board accordingly. Okay. That's all from me. If you have any further questions, do feel free to e-mail me. I hope you all stay safe in the current environment, and have a very good day. Thank you.