Jinhui Shipping and Transportation Ltd

OSE:JIN

Earnings Call Transcript 2021-Q3

[Wei Man Ching, Vice President]

Good morning to those in Europe and good afternoon to those in Asia. This is Raymond Ching from Jinhui Shipping speaking. Welcome to Jinhui Shipping and Transportation Limited Q3 2021 Results Presentation. We have 26 participants -- more. Sorry. I'm still admitting more participants. So we have 26 now, and I shall begin. Usual draw, we go through the quarter highlights -- for the quarter is at USD 40 million. Net profit for the quarter, USD 19 million. EBITDA for the quarter, USD 25 million, and basic earnings for the quarter is USD 0.177. The return on equity is back to positive at 3 point -- at 5.72%. The consolidated net profit of $19 million for the current quarter is mainly due to an 183% increase in chartering revenue due to a very strong rebound of the market freight rates as compared to the last corresponding quarter. We took delivery of 3 vessels in the year to date, and that brought, of course, additional higher income during the quarter. The average daily time charter equivalent rates increased 171% to USD 23,592 per day as compared to USD 8,713 of the corresponding quarter in 2020. But of course, as you can expect, in the current environment where logistics is a nightmare due to the COVID-19, cost side has inevitably increased as an increase in shipping-related expense due to increase in vessel-running costs. In general, this is proportional to the higher income increase, of course, and also due to newly delivered vessels during the quarter. But having said that, you can imagine, we have to take care of the crews. We have to take care of repatriation of the crews. Every time we visit a new port or we discharge to the port, there will be increased expenses. Some will be passed on to charter, but some will, of course, have to be taken care of by the shipowner. There's a net loss of USD 3 million on financial assets at fair value through profit and loss as compared to a net loss of USD 1.7 million in the last corresponding quarter. During the Q3, we repaid USD 4 million of bank loans. We spent a CapEx of USD 12.9 million, mainly on acquisition of vessels during the quarter. We've acquired further a 2007-built Supramax at $15.2 million, and this was delivered in October 2021. We also acquired a 2008-built Supramax at a consideration of $17 million, and this was delivered in November. And after the reporting date, we have contracted to acquire a 2007-built Supramax at a consideration of $15.8 million, which will be delivered within Q4 2021. I'm now going to go through detail on these financial highlights. Just to go through very quickly. Revenue for the quarter is $40.4 million. For the 9 months 2021, the revenue is now at USD 88.48 million. And you can see [ what are the ] quarter-to-quarter or 9 months in 2021 relative to the 9 months 2020, this is a remarkable increase. For Q3, the operating profit is at $25 million, for the full 9 months 2021, $124.38 million. Again, significant increase whether it's quarter-to-quarter or 9 months 2021 to 9 months 2020. This number on the 9 months of 2021, of course, has taken care of revaluation of assets. Operating profit for Q3 2021, $19.78 million, for 9 months 2021, USD 111.7 million. Finance cost, $400,000 in Q3 2021, $1.3 million for the 9 months 2021. The net profit for Q3 2021 for the quarter itself is $19.38 million, for 9 months 2021, it's USD 110.13 million. The basic earnings per share for the quarter, as previously mentioned, USD 0.177. For 9 months 2021, it's at USD 1.008. In terms of key financial ratio as of end of Q3 2021, total assets now stands at USD 465.5 million. Compared to Q3 2020, it was $366.4 million. Despite an increase in terms of assets, the interest-bearing loans have decreased. The secured bank loan as of Q3 2021 is now at USD 95.8 million versus same period last year, USD 118.6 million. Our current ratio has further increased to 1.54:1. Net gearing is -- in fact, we are just over net cash. Working capital, USD 43.03 million, again, a significant increase from USD 16.93 million as of Q3 2020. The available liquidity is at USD 96.3 million; return on equity at 5.72%; and return on total assets at 4.23%. This chart shows the fleet development. We have since 2020 acquired further vessels and have -- the overall fleet has increased to -- let me step back. Upon the delivery of course, of all these vessels, we will be at a fleet size of 23 vessels. Next slide is the details of all these ships. They are not the newest. We continued to shy away from newbuildings for the moment given there is no consensus in terms of the next-generation technology, in terms of what fuel commercial ocean-going ships are going to use. So we will continue to be patient on this front and see what kind of what design, what technology will be used in the next generation of ships before we commit into any newbuildings. But of course, we will also be monitoring the industry outlook before we do anything like that. Next slide is the installation of ballast water treatment system of our fleet. For [ Jinton ] well -- of course, we will do the ballast water system within the year. And there will be a big proportion of it that we will have to install the BWS system -- BWTS in 2022. We will, of course, do them in stages to complement the -- or to time it so that it will be to minimize the cost as per their mixed maintenance docking. In terms of debt maturity profile, total debt as of September end 2021 is at $96 million. 59% will have to be repaid within this 12 -- next 12 months, 9% will be repaid within 24 months and 32% of that will be repaid within the next 5 years. Given that we're in a very strong financial position, we're not too worried about this front-loaded repayment. We have the ability to repay or even to stretch this maturity profile as we wish to. We are not too -- this is not a concern. In terms of loading port analysis, as you can see, 95% of our cargoes are loaded in Asia, excluding China. We focus our operations in the Asia region. 3% will be North America and 2% in Australia. You can imagine why we are shying away from Australia given the political disagreements between certain large economies. In terms of discharging port analysis, most of the cargo, 87% are discharged in China, 10% in other Asian ports and 3% in North America. Time charter equivalent for our Post-Panamax fleet, the TCE is at 20,248, Supramax fleet, 23,963. And average TCE for the whole fleet is 20 -- sorry, there's a typo here. It should be -- my apologies. It should be 23,592. Quick fingers. There's a typo here. The average TCE should read 23,592, not -- my apologies with that. So there's a significant increase in terms of TCE. I see someone typing on the chat. Almost 15% down at the moment, so disappointing, very disappointing. Anyway, I presume that you're talking about the current prevailing market rates. We can talk about that later. We are, of course, very disappointed, too, if that is what you're talking about. Daily vessel running costs. Q3 2021, there is an increase in terms of running costs. The running cost itself is now at $4,992 for Q3 2021; depreciation, $2,840; and a finance cost of $137. You can imagine depreciation has increased because we have acquired for the new ships. There's a revaluation of assets that's gone up. [indiscernible] also, this will also impact depreciation. On the running costs side, as I mentioned previously, because of the COVID situation, I think you all -- I haven't been personally traveling much, but I can imagine you all understand, nowadays when you travel, you need either 14 to 21 days quarantine. There's a lot of tests going on. So all these involve costs. In addition, from our industry's perspective, inflation on the cost side is real. Crew costs, because the -- you can imagine seafarers are traveling around the globe, different ports, where they are risking their health, they are risking their well-being. So there is a true cost increase because of both inflation as well as what the environment dictates. In terms of outlook, we are fairly confident with the industry fundamentals itself. Supply of newbuildings still remain low. And as I said, because there's no consensus agreement on the next generation of technologies, I would -- I understand that a lot -- we are not on our own. A lot of shipowners are all staying on the sidelines and refrain from ordering newbuildings. And if there are people who are ordering newbuildings, big manner, meaning full size. I think there is [ upside ] pressure due to COVID, repatriation costs. And also, maintenance and spare parts, the logistics of getting these parts to the ports are -- all these costs are increasing. But at the end of the day, it's demand that is important. And this will be dictated by how the global economic recovery -- it will depend on the trend of the global economic recovery. I meant economic recovery, the trajectory, whenever you use it. At the same time, I think we live in a fairly complicated world right now. So volatility is to be expected. From our perspective in Asia, we see a lot of unstable factors due to geopolitics and disputes. So volatility should be expected. We will, of course, try to manage what we can manage, all the factors that we can control. We can't manage anything that's beyond our control. So one of them is that we will try to maintain a very healthy balance sheet. In terms of the management of our fleet size, whether we will buy further vessels, sell vessels, we'll be very opportunistic in terms of -- on this front, on the fleet management. I'll take any questions for -- if you are -- have any questions, please fire away. Now I -- you guys are talking about the share price of JIN right now, it has dropped.

[Unknown Analyst]

Raymond, can you hear me?

[Wei Man Ching, Vice President]

I can hear you, please.

[Unknown Analyst]

Yes. Thank you for a good presentation and congratulations with another great quarterly financial result. You have accumulated and you continue to accumulate a lot of nonoperational items on your balance sheet. As far as I can calculate, it's now up to $146 million, which is more than 1/3 of your balance sheet. Yes, $146 million out of, what is it, $400-something million? So is there -- do you have a target in mind? Do you just want to accumulate indefinitely or do you stop somewhere?

[Wei Man Ching, Vice President]

I think in -- I think this has pretty much a -- the velocity of this accumulation, I presume you're talking about financial assets or other assets other than ships or cash. I think we have put this to a halt. So I wouldn't expect any meaningful increase on that front.

[Unknown Analyst]

I think we were interrupted, Raymond, and my apologies for that. But -- so you do not expect it to increase further. Does that mean that as through -- when you generate cash going forward, will the dividend distribution likely be higher then?

[Wei Man Ching, Vice President]

I cannot answer you right now, but I hear you. And I think we did mention that we have been very patiently waiting for a good market. We are -- this year has been a good market. Although it's volatile right now, or actually, it will be volatile going forward, but I -- we are still fairly confident given the supply and demand outlook that the freight rates will be -- will consolidate at a healthy profitable level and where we will continue to accumulate cash. So I would say, yes, in terms of dividend payment, but the exact payout ratio, et cetera, I'm not in a position to tell you. I will reflect this to the Board of Directors, of course. And I -- hopefully, there should be -- the answer will be conveyed to all of you at the end of Q4.

[Arild Tolfsen]

Can you hear me here?

[Wei Man Ching, Vice President]

I can.

[Arild Tolfsen]

Yes.

[Wei Man Ching, Vice President]

Who's this?

[Arild Tolfsen]

I'm a smaller shareholder outside Oslo.

[Wei Man Ching, Vice President]

Is that you, Mr. Tolfsen?

[Arild Tolfsen]

Yes. That's me. Yes. Congratulation with the results. And I can understand there is a challenging circumstances out in the market. I just ran through the presentation and see that the result were a bit under what I expected. But what I feel, instead of dividends and also share purchases would be that you have a problem for share buybacks as the discount to the net asset number, it's quite high. Have you any comments on this?

[Wei Man Ching, Vice President]

No, I do not -- Mr. Tolfsen, I hear you on your idea. I understand this share buyback in terms of -- when there's a deep NAV. But I have no comment on this. Of course, again, this is a very common tool that companies use, and it is on our list. It's not that we don't know about share buyback, but we do not have any plans to do any share buyback right now. This is all I can tell you. But we'll keep this in mind. So thank you for your input. Okay. It was very noisy. When was it? Sorry. It's like they have the whole family they're having a gathering with. So unmute that again in case they have any questions. I'll look at the chat to see if anything?

[Unknown Attendee]

The TCE for Q3 is relatively low to the average spot rate. anything we need to worry besides the timeline between charges? This is Leo.

[Wei Man Ching, Vice President]

Leo, no, there isn't anything that you should be worried about the time lag. You have to realize that the TCE on BDI is not exactly the same. It also varies on the age of the vessel, how new it is or how -- especially how big the capacities are. The very, very new modern Supramaxes are over 60,000 deadweight tons. So also, depending on the location or the type of cargo they're carrying, there will be a difference. So -- but in majority, it is due to the time lag. Come on, Mr. Ching, you tell the same story on and on again. I'm sorry, this is -- I wish I am authorized to tell you more. If -- I just have to tell you the same response that I know of until there is a proper dividend policy.

[Unknown Attendee]

Will you allow a follow-up question, Raymond?

[Wei Man Ching, Vice President]

Sorry?

[Unknown Attendee]

Can I ask a follow-up question, please?

[Wei Man Ching, Vice President]

Please do. Go ahead.

[Unknown Attendee]

Yes. Again, there is some noise on the chat here. It's none of my concern. Congratulations for a good quarterly financial results from my point of view. But however, could you -- you have these nonoperational items in your balance sheet, like real estate assets and investment in loans. Could you assure us that primary business going forward will be as a ship owner and that we will keep those other investments to a minimum?

[Wei Man Ching, Vice President]

I think I can promise you this from a position here right now. To be honest with you, I hope you guys can also be sympathy -- can have some -- understand, and to a certain extent, sympathize with the situation, because you guys are not exactly running the -- or managing the business during the most difficult times. We have gone through a very long period where shipping has been extremely underperforming, and we have to try and find ways to look for returns. For example, those leases, they have been giving us a return. At the same time, they have been paid back as soon as they mature. So -- and we have not been doing any new ones. In terms of property, of course, we all now know that the world has gone upside down. So I think we also look at the situation to see whether the risk versus reward makes sense. Right now, I can say that it doesn't make sense. And it's -- we are lucky to encounter a very healthy ship -- dry bulk shipping market again. So this is where we will be focusing on. So I hope that gives you some comfort. Anyone has any further questions? Okay, the TCE is higher than the last one. Does it renewed -- does it renew the charter project? Could I ask, the new contract -- is the new -- well, we have over 20 ships. So every downtime, the renewal will be a little bit different. Some of our charters are only like 3, 4 weeks. So no, we actually renew them on a very, very regular basis. So even like 5, 6 weeks ago when the market was at above 30,000, we would have charters that we managed to capture the highest rates. But of course, since the market rate -- the freight rate dropped, we will also have captured market rate in the teens or below 20,000. So we are running all our ships on -- pretty much on spot right now. So we will be -- we -- although there will be time lag, but we pretty much captured the entire trajectory or the entire curve. No, I'm not going to answer this question whether Q4 is higher than Q3, to be honest, because I'm not going to give too much forward-looking statements. This is against the trade -- the stock exchange regulations, I'm afraid. Anyone has any further questions? If they can do so by typing on the chat or they can verbally scream across the computer, I mean.

[Unknown Attendee]

I will try with another question if you will allow me.

[Wei Man Ching, Vice President]

Please.

[Unknown Attendee]

And I will certainly not scream at you. There's no need for that.

[Wei Man Ching, Vice President]

Thank you.

[Unknown Attendee]

Could you kindly give us some insights or the corporate view on this CO2 emissions? Here in Norway, some people are more concerns than others about these new regulations and whether the operation of older or fleets with -- our fleet with an average fleet age of the 15 years. Is that in your view a handicap when we look at what could become the new CO2 emission regulations? Or is it actually a bonus to have a medium old fleet because -- for whatever reasons. Do you have some thoughts that you can share with us in this regard?

[Wei Man Ching, Vice President]

I can. I will try my best at least to tell you what overall the company thinks as well as -- we'll probably steer more towards adding a little bit of my own personal flavor. I think we are shying away from, for example, ordering the -- a spanking new vessel because a brand new vessel does not satisfy all the CO2 emission, for a start. Now of course, buying -- or using a too old vessel at the same time, you -- there will be handicap because of the engine ability, the pollution that it would generate would be higher. So you can see that the -- when you deploy a vessel in the market, there will be pricing difference in terms of the freight rate you fetch due to age, due to carrying capacity, et cetera. So we have selected a medium kind of secondhand vessel where we are -- it fits our expectation where we believe that, in the meantime, in the short to medium term, these vessels will continue to make money. We will minimize the pollution by adhering to all the mandatory environmental laws. For example, we will use the low sulfur fuel to minimize pollution as much as possible. And let's say, if -- going forward, if there are any new implement regulations on the CO2, then we can decide whether it will be in the form of buying the carbon tax versus investing in new vessels where it will be proven that it is fully in full compliance of the CO2 emission. Because right now, I don't see any design in -- fully in compliance with the CO2 emission at all. This is one of the reason why we shy away from newbuildings or anything that is too old. In terms of acquisition plan, as I said before, we have to be very opportunistic about this. You can -- I think you all -- even -- I mean the information is very easily accessed wherever you are in the globe in terms of world news. We are operating in a very, very volatile environment, not just from an industry perspective, but in terms of macro perspective. There are arguments about whether the current inflation the world is experiencing, is it a short-term one or is it a long-term one? So the monetary policy changes, geopolitical [ events ] are all getting very, very volatile. So we will have to be very opportunistic in terms of acquisition plan.

[Arild Tolfsen]

Can I just ask a short question again, Raymond?

[Wei Man Ching, Vice President]

Sure.

[Arild Tolfsen]

Yes? Regarding the outlooks going forward, we saw a peak in the rates earlier this year. Supramax was 40,000 plus. Now it's currently -- yes, 25,000 or something like that. But how do you consider the next quarters and especially 2022, '23? We see the supply demand side is encouraging. But would you please elaborate a bit on the outlook on the freight rates going forward?

[Wei Man Ching, Vice President]

To be honest with you, I don't know. I will be very honest with you, I don't know. Shipping is very, very volatile in -- on its own. The only most -- or the closest to accurate estimate is how you see the balance between demand and supply. Now I know -- I can see the supply is not scary, but nowadays, because there are so many factors that could derail what a reasonable expectation in demand would be. A lot of things are very politically driven. I believe you understand where I'm coming from. So it's very hard to say. But let's say, the world is relatively peaceful going forward, I would imagine that -- I won't even rule out either seeing new peaks going forward, to be honest with you, if the world is peaceful and then we are all united in terms of we want to see economic growth, we all want to -- a better living standard, we all want to make more money. But this is something that is beyond our control. Just in case -- if the presentation Zoom get cut off and somebody's -- and we haven't really finished, just please log in to the same -- using the same details again. But I trust that we are coming closer in end. Is there any further questions? I can't tell you -- what is it, Hans, what level I did -- [ I'll fix ] my last ship at, I can't tell you. Sorry. If [ volatile one ] increased the use of time charter rates in part of the fleet, yes, this makes all perfect sense. But you know what? They aren't -- for charters that we are willing to pay me for a long-term charter, we may not trust. Either this -- we have been in the worst of times in the shipping cycle, so -- and this trust over long-term [ charges ], I don't think it's fully recovered yet. So I mean the overall balance, we just -- we still see opportunities where that freight rates could...[ Call ended abruptly ]