Jinhui Shipping and Transportation Ltd

OSE:JIN

Earnings Call Transcript 2018-Q4

[Wei Man Ching, Vice President]

Good morning to those in Europe and good afternoon to those in Asia. This is Raymond Ching, Vice President of Jinhui Shipping. Welcome to the Q4 2018 and 2018 annual results presentation. The results announcement as well as the presentation has been distributed and available in the public through the Oslo Stock Exchange website as well as the company's website, and I believe all of you have a copy. So I shall begin the presentation now. If you turn to Page 3 of the presentation, going through the highlights, Q4 2018 on the financial highlights, we recorded USD 18 million revenue for the quarter. As a result of the volatility in the financial markets, we recorded a net loss of USD 3 million. EBITDA for the quarter stands at USD 1.8 million. And the basic loss per share for the quarter is USD 0.028.Turning to the full year results. Revenue for the year, USD 76 million. Net profit for the year, USD 8.7 million. The earnings before interest, tax, depreciation and amortization is USD 29.5 million. And for the full year, the basic earnings per share is USD 0.08. We're glad to tell you that on the balance sheet side, our gearing ratio is very low, literally none at 0.65%. And also on the positive news, we hope believe -- we hope the market will receive this positively, we proposed a final dividend of USD 0.023 per share.To go through the key events that occur during the financial year. Firstly, the group exited and ended the intercreditor’s deed on the end of September. We repaid all deferred installments during the forbearance period of USD 31.4 million to respective lenders from our own internal resources on 30 January 2018 (sic) [ 10 January 2018 ]. To further reduce interest expenses, 2 vessel mortgage loans of USD 19.1 million with higher interest margin were fully repaid during the year. We disposed of 4 Supramaxes in 2018 for USD 32.6 million with net gain of USD 5.4 million. To diversify our assets, we invested USD 10 million in a co-investment property project in Shanghai. USD 4.8 million has been paid with USD 5.2 million of capital expenditure commitments going forward. We further invested USD 8.8 million in real estate market during the year for some further diversification. In order to strengthen our balance sheet as well as a more -- longer debt maturity profile, we signed a refinancing deal in fourth quarter of 2018. Our bank borrowings reduced from USD 137.8 million as at the end of 2018 (sic) [ 2017 ] to USD 90.2 million as at the end of 2018. In January 2019, we contract to dispose of a Supramax at USD 7.4 million with an expected net gain of USD 1.2 million and expected deliver the vessel to the buyer in end of March 2019.The next slide is a summary of the financial highlights and I won't go through that. It's very clear and self-explanatory.On the next slide, Page 6, key financial ratios. As of 2018, our total assets now stand at USD 361.6 million. Total debt borrowings, USD 90.18 million. We have a 3.51% return on equity, 2.27% return on total assets, a current ratio of 2.54, a net gearing of 0.65%, a working capital of close to USD 70 million and available liquidity of USD 88.5 million. If you look at this -- all these figures relative to the end 2017 figures, apart from the total assets, which have reduced because of a smaller fleet size, I believe all these figures have shown good improvement.In terms of our fleet development as of the end of 2018 -- or actually as of today, we have a fleet of 19 vessels and we include the 1 to be delivered to the buyer. By end of March, we will have 18 vessels in the fleet. Our fleet comprised of predominantly Supramax, except 2 Post-Panamaxes. On the next -- on Page 8 of the presentation, it's a list of our own fleet. The total capacity of our own vessels now stands at 1.136 million deadweight tons with an average age of 10 years old. In terms of the debt maturity profile, if you look at the next slide, we believe this is much -- it offers us a lot more financial flexibility post refinancing and before. So as of 2018, now after the refinancing, 27% of our debt will be repayable within the next year. 9% will be repayable between 12 to 24 months. Between 24 months and 5 years, 45% of our debt will come due. And 19% of our debt will be mature 5 years -- in 5 years' time.In terms of the cargo analysis, we have been trying to get -- obviously trying to fetch the highest freight rate in choosing the cargo. And for 2018, 86% of the cargo that we have carried are minerals, 11% coal, 2% steel products and 1% cement. In terms of the loading port analysis, 89% of the cargo were loaded in Asia, excluding Chinese ports; 8% from Australia; and 3% from China. In terms of the discharging port, 95% of the cargo were unloaded destined to Chinese ports and 5% in Asia, excluding China.On the next slide is the time charter equivalent of our own vessels. For the fourth quarter, our Post-Panamax fleet recorded a time charter equivalent of USD 12,072 per day, a good improvement from 2017 Q4. Note that Q4 overall has been rather weak since the U.S.-China trade dispute. For the Supramax fleet, the overall TCE for Q4 is USD 9,559. And on average for Q4, the TCE of our fleet is USD 9,815. For the full year 2018, for the Post-Panamax fleet, the average TCE achieved is USD 11,689; for Supramax, USD 9,743. And for the entire fleet, the average TCE achieved for 2018 is USD 9,922, which is a good improvement, almost a 20% improvement from a figure achieved in 2017.Having said that, the market is competitive out there. We have been doing our best to control the costs. If you look at Q4 2018, there’s a high --the running cost is at $4,537 versus Q4 2017 $4,493. But for the full year 2018, the running cost is $4,028. Finance costs for the full year, $387, a significant improvement from -- versus 2017 partly because of the refinancing that we have done as well as the smaller fleet. The daily running costs is calculated as the aggregate of crew expenses, insurance, consumable stores, spare parts, repairs and maintenance and other vessels' miscellaneous expenses divided by the ownership days during the period.While this is what had happened during 2018, and now it's -- we have to look ahead. And if you turn to the final slide, our market outlook, Q4 was rather challenging and to a lot of market observers, it was actually a little scary and worrying. Since the U.S.-China dispute, the sentiment in a lot of markets, including dry bulk, turned south very, very quickly. However, in the recent weeks, especially since after the Chinese New Year holidays, market sentiment has turned more positive. And looking at public news regarding the geopolitical events, especially between United States and China, the general consensus is that U.S.-China trade dispute will resolve soon. Having said that, the fundamental -- it seems -- it strikes us that the global economic growth is on rather fragile footing, and we expect going forward the overall economic growth to remain sluggish. Since the U.S.-China trade dispute, we can see that the economic growth in China has already been affected. Most of what happened in the past 6 to 7 months, the dispute between U.S. and China is, to be honest, is mostly talks. The actual trade tariffs has not really hit in full force. But already, the -- as the sentiment turned south, a lot of the economic activities in China, still down a lot more than the market expected.We also see that Chinese -- the Chinese government's introducing a lot of measures to try to boost the economy and the recent renewed focus on infrastructure, for example, is a positive to our industry. We expect the trade volume in dry bulk is likely to remain stable against such macro backdrop, although the actual composition in terms of the long-term commodities demand will change. By that, we mean, for example, we see that environmental measures are becoming increasingly important. So for example, we expect the coal trade to slowly reduce in time. On a very positive front, if we look at the industry dynamics, which we believe is the ultimate -- the first most important factor, is the supply of new vessels. We're glad to see that the supply of new vessels continue to be very moderate. And should the demand of commodities going forward and the global economic growth hold at a relatively healthy -- no need for rapid growth, low single-digit growth, we believe it points to a slow-recovering healthy freight market.On the 2020 IMO sulphur cap, we see more and more interesting debates coming out of the market over the effectiveness of installation of scrubbers. We've seen more countries banning the use of open-loop scrubbers. For ourselves, given that our fleet are predominantly the Supramax size, it's a smaller-sized dry bulk vessel within the global different classes of dry bulk vessels in the billable fleet. The installation of scrubber actually does make very, very little economic sense to us. So we will not be installing scrubbers at this juncture.Looking at the refining capacities of global refineries, we see that between now and 2023, they are roughly around -- up to 3 million barrels per day of capacity of low -- ultra-low sulfur fuel oil of refining capacity being added to the global refining capacity. Much of that is in Asia. So we are fairly confident that there will be sufficient supply of low -- ultra-low sulfur fuel oil, which we are likely -- we would choose to adopt as IMO 2020 kick in, in the ports that -- especially in the ports that we visit we call given majority -- or the super majority of our activities lies in the Asia Pacific region.Overall, we are cautiously optimistic of the future. And we will best to remain financially nimble to react, to respond to changes in the market. And we hopefully will generate -- continue to generate positive results and deliver further value to shareholders going forward.Do you have any questions [indiscernible]?

[Operator]

[Operator Instructions]

[Unknown Analyst]

Hello? Can you hear me? I'm [ Michelle ] from Hong Kong Zhongcai Finance Investment Ltd. Congratulations on the reported -- yes, hello. Congratulations on your annual results profit in 2018. I have one question about rental income. Obviously, rental income, Jinhui Shipping acquired [indiscernible] office in [indiscernible] in July 2018. Do you think Jinhui Shipping start to have rental income in the first quarter in 2019? Or you need to renovate the office first?

[Wei Man Ching, Vice President]

Well, obviously, we'll try and there will be some simple renovation work to be done. Hopefully, we'll get it ready and receive rental income as soon as possible.

[Unknown Analyst]

Do you have any kind of schedule?

[Wei Man Ching, Vice President]

No, I do not have a very -- a fixed time schedule. I believe in certain things need to be fixed and you need to find the appropriate client. But we will move quick. We also want to...

[Unknown Analyst]

How about the Causeway Bay office building? Do you need to renovate the offices? Or you will have rental income in the first quarter?

[Wei Man Ching, Vice President]

One of the Causeway Bay properties has already been rented out and the other one we're doing some minor works to it. And there are 2 units. So one has already been rented out and the other one...

[Unknown Analyst]

Do you mean that Jinhui Shipping or Jinhui Holdings? You mean the buyer is Jinhui Shipping?

[Wei Man Ching, Vice President]

Because you asked about the Causeway Bay, then the Causeway Bay actually belongs to Holding.

[Unknown Analyst]

Raymond, this is [ Leo ]. Can you hear me?

[Wei Man Ching, Vice President]

Yes.

[Unknown Analyst]

Yes, I'm also from Hong Kong Zhongcai Finance Investment. I have 2 questions. So first one is regarding the company's investment strategy. I'm wondering what is the company's view towards investment property and also the equity investment. Because I suppose there's a lot in your investment in equity market. So I'm wondering if you are going to increase the investment or to slow down investments in the [ equity market ].

[Wei Man Ching, Vice President]

It looks like in view of the -- I think it's public knowledge that there's a lot of volatility both in the equity market, freight market as well as even the property markets. So for example, the property market, it's always been one of our views to put -- not to put all our eggs in one basket and put partially some of our eggs into an asset class that do not correlate to shipping. So what the reason behind buying -- or allocating a small proportion of our funds into some real estate. We are very selective on that front. We are very selective on that front. In terms of the equity, there's unrealized loss as of end 2018. Confident to say that even the -- I would say 98% of fund managers globally has been making a mark-to-market loss on 2018 Q4. From that -- on that perspective, we believe that unrealized loss is actually fairly small. It's around 3-point something million. Gains in such a volatile environment, I think it's actually respectable. If we look at the position now, it's now end of February, a lot of that has been recovered.

[Unknown Analyst]

So you're holding the same allocation for the equity market? I mean, can we enjoy a...

[Wei Man Ching, Vice President]

For now, I think it's more like I think we have been reducing part of the position as the market -- the overall global market has been in recovery because it's -- we still see uncertainties in markets. So as some of those are securities that we have purchased, and they have recovered, we have also had some of the [ income ]. In terms of when you ask -- if you ask me what is the overall strategy for 2019 in terms of how we allocate our funds, to be honest with you, it's so -- the markets are so volatile, the situation is so fluid out there, I can't give you a particular strategy. We just have to play it by ear because events are happening every day, unexpected events happening every week, every 3 days.

[Unknown Analyst]

Understood. My second question here is regarding the dividend policy. So I've heard there's a dividend announcement for the year-end dividend. So I'm wondering what kind of dividend policy are we applying.

[Wei Man Ching, Vice President]

We are not committing to a particular dividend policy, but we rather use actions or to show our shareholders what we are going to do. As you can see, it's -- the shipping industry, the dry bulk shipping has suffered for many -- quite a number of years. And as soon as we have turned positive and given that financially we, in terms of balance sheet -- of the financial status of the company is rather robust, we are -- we decided to distribute dividends. Going forward, this will be the same kind of thinking going forward, but in terms of whether it's going to be a percent of earnings to retain this flexibility because we do operate in a highly intensive, highly volatile industry.

[Unknown Analyst]

Understood. So just another one. Can we expect Jinhui Holding to declare a dividend year-end?

[Wei Man Ching, Vice President]

I'm afraid in today's forum, I am representing Jinhui Shipping and Transportation and I'm not in the position to discuss the decisions or actions that is going to be done by Jinhui Holdings.

[Unknown Executive]

Currently, there are no -- anybody, any further questions?

[Wei Man Ching, Vice President]

Okay, if there are no further questions, I'll -- we'll call this the end of the presentation. Thank you very much for calling in. If you have further questions, you wish to speak to me separately, please drop me an e-mail or call me at the office. Thank you so much. Good day.