Jinhui Shipping and Transportation Ltd

OSE:JIN

Earnings Call Transcript 2022-Q3

[Wei Ching, executive]

Good morning to everyone, all those in Europe, Americas. Good afternoon to those in Asia. This is Raymond Ching from Jinhui Shipping. Welcome to Jinhui Shipping and Transportation Q3 '22 Results Presentation. I believe you all have read the announcement, and I have a copy of the presentation, so I shall begin.

First, I would like to go through the Q3 2022 financial highlights. For the third quarter, we recorded a revenue of USD 40 million. The net profit for the quarter USD 0.3 million. Earnings before interest, tax, depreciation and amortization at USD 12 million. Basic earnings per share, USD 0.003; and gearing ratio at 7%.

In Q3, the chartering revenue decreased 2% to $40 million. This is due to a weakening of the dry bulk market during the quarter. This is despite there's a -- the number of owned and chartered vessel has increased compared to the last quarter as in 2021.

The reported average TCE for Post-Panamax fleet and Supramax fleet are $20,607 per day and $19,408 per day, respectively. A net loss of $3.8 million on bunker was recognized during the quarter. An increase in shipping-related expense is mainly due to increase in vessel operating expenses such as the crew costs and other pandemic-related manning expenses as well as the number -- increase in number of owned vessels as compared to last corresponding period.

Obviously, there's some noncash items as well because we have revalued the assets upwards previously. And as a result, the depreciation figure would have increased. Further, there's a net loss of $4.3 million recognized in the current quarter on the financial assets. This is compared to a net loss of $2.9 million from Q3 2021.

During the quarter, we have drawdown new secured bank loans of $24.4 million for the financing of acquisition of vessels and repaid $6.1 million of bank borrowings. There was a CapEx of $38.8 million of which $25.5 million was paid for Supramax, which was delivered in July 2022; and $13.3 million for dry docking and Ballast Water Tank System.

We previously contracted to acquire two 2014-built Supramaxes, each at a consideration of $25.4 million. Both vessels were delivered in Q4 2022. After the reporting date, i.e., the end of September 2022, 2 Post-Panamaxes were disposed at a consideration of $17.3 million each. Both vessels were delivered to the purchases in Q4 2022. One older Supramax was contracted to dispose at a consideration of the disposal -- at a consideration of $13.3 million and will be delivered to the purchaser before the end of 2022.

This next slide are all reported figures. I think they're self-explanatory, so I won't go through that. The key finance ratios: total assets as of Q3 2022, USD 605 million; secured bank loans, USD 94.8 million -- or USD 94.9 million; current ratio at 1.31:1.

Gearing is kept very low at 7%; working capital, $22.4 million. The available liquidity at USD 62 million. The return on equity dropped to 0.06%. And so as the return on total assets, 0.05% a significant drop from before. This is a -- there's been a lot of volatility in the market. This is not a nice set of performance figures, I'm afraid.

In terms of fleet development, we are now at 25 vessels within our fleet. The average age of our fleet is now at 13 years old. Again, we have -- we continue to try to maintain a respectable age profile for our fleet, but avoiding newbuildings still. The outlook is getting more complex, and we will be very careful in terms of our fleet development.

In terms of chartered-in vessel. We are now operating 1 chartered-in vessel, a Panamax named TAHO CIRCULAR. We have 3 vessels remaining that requires Ballast Water Systems. These are the 3 vessels, and they will be installed in year 2023 and year 2024, respectively.

The total debt as of the end of September was USD 95 million, 57% -- sorry, 51% of that will be repayable within the year, 26% within 1 to 2 years and 23% between 2 to 5 years. We have transported more cargo in Q3 2022, 4.1 million tonnes versus 2.7 million tonnes as of Q3 2021. 84% of these are the minerals, 8% steel car products and 8% is coal.

Much of our activity in Asia, 77% of the cargoes are loaded in Asia, excluding China; 14% from Australia; and 9% out of China. In terms of discharging ports, 70% of our cargo are discharged in Asia and 22% in Asia, excluding China.

The time charter equivalent as of end Q3. For the Post-Panamax/Panamax fleet, 20,607; Supramax fleet, 19,408; and in average of 19,562.You can see this is a decline versus Q3 2021, mainly of the decline in freight rates of the Supramax market. The 9 months figure represents a more -- a better figure. For the 9 months 2022, the Post-Panamax/Panamax fleet has a USD 21,593 per day. TCE for the Supramax fleet, $21,125; and average of the fleet, $21,168.

In terms of the daily vessel running costs of our own vessels, I'm afraid the inflation really has kicked in. Majority is due to the crew cost. Insurance, spare parts, et cetera, all has gone up, but the main component will be the crew expenses, including asking the crew to work in this environment. They are really asking for more remuneration and this is the market. We have been trying to reduce this or put this under control as much as possible.

For example, we are using not purely Chinese crew, we've been -- we are increasing the use of Philippine crews as well. But at this -- the overall inflation in the trend is not changing. So all the headline items, you read in the financial markets of inflation, they are pretty real.

So for Q3 2022, the running cost is USD 6,095 per day versus Q3 2021, it was below $5,000. Obviously, there will be some -- this quarter, there will be additional figures because we have taken in -- they will be due to new vessels delivery, et cetera. But the overall trend, I'm afraid that this running cost will be on an uptrend, I'm afraid. The depreciation figure, as I've mentioned previously, has increased because there was a revaluation upwards before.

Hence, this noncash depreciation item would have increased. There's also a slight increase in finance costs, obviously, because of the drawdown in new loans and the -- as interest rate cycle is not favorable, the interest rates -- U.S. dollar interest rate is going up, finance cost has also gone up slightly.

In terms of the outlook. I think before I go into these individual points, you would have noticed that while we have been increasing or we have bought new younger secondhand vessels, at the same time, we have been disposing our older vessels within our fleet. This serves 2 purposes. One, it keeps the age profile in check. Secondly, this also serves as monetizing assets in order to reduce the debt. We want to keep our bank borrowings in check because in the foreseeable future, we do not see the interest rate cycle in favor of borrowers.

At the same time, we are keeping -- we are becoming more and more aware of what's happening in the world. Across the board, irregardless of industry, we see there's an increased uncertainty in terms of the global economic growth.

Since dry bulk is very much driven by the Asian countries, especially China, who has been the biggest commodity importer in the past, over a decade as well as because you can see the majority of our cargoes are discharged in China. We see some warning signs that we need to be prudent in the short term, at least.

At the same time, I think because of this macro environmental that many or most people or most business owners or ship owners would be aware of, this actually translates to a reducing investment appetite. This in particular to a sector means that there's a low appetite to order newbuilding. This has the benefit of keeping the supply in check, of course.

So this goes to the third point, the limited new building orders, given economic and regulatory outlook. Of course, the regulatory outlook, we're talking about the future generation of vessels that will satisfy all the environmental rooms that will kick in. Right now, again, we don't see any consensus on what is or what will exactly happen to the next generation of ship designs. So ourselves, plus many others, are staying on the sideline, shying away from new building orders.

Apart from business risk, apart from economic risk, one of the risk that is very, very hard to gauge and predict the geopolitical risks all around. And that continues to linger around. And we are very, very mindful of that and how these beyond our control geopolitical events would shape the economic future.

The overall -- the way we see the world progress or change going forward is we see that there will be a competition for energy and food supplies. So this hopefully would translate to a positive development in our industry. The good thing is that supply is in check. So the missing variable in the equation would be how would all these factors translate to possible positive demand of dry seaborne trade.

Overall, we are cautious -- cautiously optimistic, I would say, in the short term. It's close to year-end. I think that right now, that there won't be any big changes in -- before the -- let's say, Christmas or actually, a few weeks after Christmas, it will be the Chinese New Year holiday. So I don't expect any big movements or big positive developments and the freight rates. I think it will be after that. But in the meantime, we'll be very, very careful, and we remain hopeful. And we'll watch the market very carefully and to try and capture the uptrend or try to maximize revenue as much as possible.

That is all for me now. So if you would like to -- if there's any questions, why don't you fire away, either verbally or you can type the questions on the -- type your questions out.

[Wei Ching, executive]

Okay. First question, "We have noticed the company has sold 2 Post-Panamaxes recently. The company is only operating Supramaxes for several fleet. Can you show if there is any plan for restructuring the fleet?"

Okay. I believe you are talking about restructuring of the fleet in terms of other dry bulk vessels or maybe other sectors. The answer is no. Despite the Supramax market recently is not favorable, i.e. has been weak, we still believe that according -- in accordance to our experience, this sector of vessels, given its cargo flexibility, given its flexibility to visit a huge number of ports relative to larger size vessels. We still believe this is the best plus of dry bulk vessels, which we know best, and we will continue to focus in this sector. If you are talking about other sector of shipping, then the answer is no. We do not of any plans on that front either.

Yes, correct. The bank loans, we have drawn down additional loans before the -- as on the Page 2, I believe, of this presentation for the acquisition of vessels. The bank loan, correct.

In terms of going forward, whether we will continue to dispose vessel, and does it mean we'll stop to acquire vessels. Again, I would like to stress that shipping is very, very volatile to start with. Right now, the world is very, very unpredictable to start with. And I think on both fronts, it has become increasingly hard to project, okay? .

I think let's say before, companies would have 5 scenarios of how the future will play out in terms of cash flow, forecast, et cetera. Right now, there will probably be 15. It's very, very hard to predict. So it's not an easy -- in terms of your second question, it's very hard for me to answer. Right now, I would say yes.

There is a reduce in investment appetite. Correct. Will we continue to dispose vessels? Then again, it would be -- it's, again, a best -- a question that depends on how well the market will be doing. Obviously, we're not going to buy or sell anything at any prices, but we will just have to be very nimble and react accordingly to how both the dry bulk shipping market is performing as well as how -- against what kind of global economic backdrop we are facing. You're asking a $1 billion question.

Again, it's not a hard and fast sharp rule whether it's a discount to the market or relatively similar to the market level. I guess it's just timing. Timing of when the vessels were the previous -- finished their previous employment and whether they have been able to capture certain strengths in the market. No, no particular reason.

And if it performs according to the market, better than the market or below the market, it's very often not something that we have a magic wand to control that. It just so happens, it -- a matter of a few days in terms of when we renewed the contract, the numbers will change.

I think a bit more maybe on how we manage our fleet. Obviously, the marketplace is changing so rapidly. I think not just for us. I believe all of you are very intimate with the financial markets, equity market. You can see that there has been a lot of fluidity in the market where no matter how seasoned an industry you are, no matter how seasoned an analyst you are, it has been very hard to predict.

So for example, when we bought 2 younger 2014 second-hand vessels, our objective, obviously, is to reduce the age profile as well as having newer vessels, which could allow us to explore more trades that could go to the most demanding ports or carry, let's say, for example, carry more grain, for example, which require a higher requirement, younger vessels, particularly in simple terms.

But the market has become so volatile that we became very, very alert and at the same time, we have to sell some of our older vessels, which, again, I would say that it serves, it kills several birds in 1 stone. One, reduced age profile; two, monetize assets to keep gearing in check. So it has not been easy. Sometimes we just have to be very, very nimble.

Anyone has any further questions? If there are no further questions, I'll call this an end. Maybe I can add one further point in terms of investment appetite. I think looking at both the market on the shipping side, looking at the economic outlook and if we -- if I also add another point, looking at the lending appetite from banks.

We noticed that even though when banks are still willing to lend, it's coming at an additional price. Given the Fed actions and/or expectation of how the interest rate in the world trend, we believe that it's -- we have to be very, very careful in terms of loading on too much debt. Call us conservative, but if -- when the demand is so unpredictable, when the global economy is so unpredictable, I think it's worthwhile to be -- to exercise additional prudence.

Okay. That's all for me. I'll call this an end. Thank you very much. And have a very nice day for everyone. Thank you.