Jinhui Shipping and Transportation Ltd

OSE:JIN

Earnings Call Transcript 2021-Q4

[Wei Ching, executive]

Good morning to those in Europe, and good evening to those in Asia. Thank you very much for attending Jinhui Shipping and Transportation Limited, the Q4 2021 and 2021 Annual Results Presentation. I believe, you can all hear me. If you cannot hear me, please raise your hand. Excellent, only one confirmation. And I shall begin. This is Raymond Ching from Jinhui Shipping and Transportation Limited. I believe you would have all seen the annual results. So I hope you guys are overall pleased.

Going through the 2021 highlights. For the final quarter, revenue for the quarter Q4 2021 is USD 43 million. Net profit for the quarter is USD 84 million, EBITDA at USD 91 million and for Q4, the basic earnings per share is USD 0.769. For the full year, the revenue for the year is $131 million. The net profit is $194 million, which included a reversal of impairment loss on owned vessels of $133.6 million. One can imagine as our -- the earnings ability of the assets rise, we have to revalue the assets upwards. The earnings before interest, tax, depreciation and amortization for the full year is USD 215 million. The basic earnings per share is USD 1.777. We continue to keep our gearing at a very low level at 4%. And we proposed a final dividend of USD 0.07 per share.

The consolidated net profit of $194 million for the current year is mainly due to a chartering revenue increase of 178% due to a very, very strong dry bulk shipping market relative to last year. The average daily time charter equivalent has increased 165% to $19,233 for the full year compared to $7,269 for last year. We took delivery of 6 vessels throughout the year, which brought additional higher income during 2021.

Under the accounting rules, we need to perform a reversal of impairment loss on both 30th of June 2021 as well as end of December 2021. In total, we recognized $133.6 million reversal of impairment loss on our owned vessels. There's an increase in shipping-related expense, it's mainly due to inflation and the increase in number of vessels. Not to mention part of this inflation would be caused by extra arrangement cost in relation to the battle against COVID.

We recorded a net loss of USD 2.6 million on financial assets at fair value through profit or loss compared to a net loss of $3.9 million in 2020. We also have a fair value loss of $1.3 million on investment properties. We draw USD 12.6 million of debt and repaid $28.3 million of bank loans during this year. We've spent $81.3 million, mainly on acquisitions of vessels during the year.

In total, in 2021, we acquired 8 Supramaxes and took delivery of 6 vessels during 2021. This is a more detailed breakdown of the numbers relative to quarter versus the full year. I believe they should be fairly self-explanatory. So I will skip going through this.

On the key finance ratios, our total assets has jumped, obviously, due to a reversal of impairment as well to USD 547.7 million relative to USD 366.16 million in 2020. Secured bank loans stand at USD 92.58 million, versus USD 108.35 million, current ratio 1.50:1 compared to 1.38:1 in 2020. The gearing has dropped to 4%, of course, this is due to the asset appreciation due to a reversal of impairment loss.

Working capital, USD 37.89 million. We have an available liquidity of $76.4 million. Return on equity 58% and a return of total assets of 43%. As a company, we are pretty happy with 2021. Our fleet development has reversed the trend of reducing fleet since late 2020. And we now -- as of February, we have 25 vessels in our fleet.

On the next slide is the detailed fleet list. Note that we have been acquiring or increasing our fleet via the purchase of secondhand vessels. We have been shying away from newbuildings because on the -- when we weigh the cost return balance. We still believe secondhand vessels would offer better value for money in -- to put it in a nutshell, especially when there's still no consensus on what the next generation or design of commercial ocean-going vessels will be. We will remain our focus on secondhand vessels.

This slide highlights the need of installing water ballast treatment systems for our vessels. You would know that the bulk of it will be within 2022. We will be systematically installing this BWTS system onto our ships as they go into their yards for their periodic maintenance. So no, they will not go all at once and cause any disruption to our operations. We have a good plan to install these BWTS on our ships at different times during -- throughout the year.

Debt maturity profile as of end of 2021, 31st of December, we have USD 93 million of debt. 57% of it will be repayable within 1 year, 23% repayable within 2 years and 20% within 2 to 5 years. In terms of cargo volume analysis, 86% of our cargoes are minerals, 10% coal and 4% steel products. Our loading port 89% of our ships have been loading our cargoes in Asia, excluding China, 6% in Australia, 3% North America, 1% Europe and 1% China. We've been focusing our trade in the Asia and according to the nature of our fleet and the nature of our customer network, this looks like to be the pattern going forward in the indefinite future.

In terms of discharging port, 88% of our cargoes are discharged in China, 11% in Asia and 1% North America. The time charter equivalent I think this looks -- this is very, very interesting. You would notice the uptrend. If we look at the full year 2021 figures, for the Post-Panamax fleet, the full year average TCE is $19,116. But if you look at Q4 2021, the latest picture, the average within the end of 2021 is $31,580.

For Supramax, full year 2021, the average TCE achieved is $19,247 per day, whereas for adjusted Q4 2021 is at $21,845. For the full year, the entire fleet average is $19,233 and average just over the quarter, Q4 2021 is $22,808. And I'm glad to tell you that as of this very moment, we are talking about rates for Supramax fleet, for example, at high 20s. Obviously, going forward, this could be volatile, but I think overall, 2022 would be a fairly robust year in terms of freight rate. If there are no sudden or out of the blue surprise. On the running costs, of course, there comes a price. We are operating our fleet in a very, very challenging environment this year. Not because of the demand supply situation, not because of economy, but because of the battle that we are all fighting, which is to fight against a pandemic, the COVID-19.

Running costs for Q4 2021 has increased to $5,667 per day, with the depreciation of $3,046, of course, depreciation is because we have acquired new vessels. And as a result of the value increase in assets, depreciation also increased. So I believe all your finance professionals will appreciate that. Finance cost, USD 148 per day. This increase in Q4 is also because we are taking delivery of new vessels in Q4, whenever we take delivery of new vessels in the initial period running costs would always run up higher than usual because we will need to get ready various maintenance parts, the taking over of the crew, et cetera, all these costs, especially during COVID-19 runs a little bit higher.

But given the -- on the revenue side, the freight market is relatively I wouldn't say relatively may I step back is actually pretty healthy. It's a pretty happy freight environment. So I think it is more than enough to absorb this cost -- this increase in cost.

For the full year, 2021, the running cost is $4,624, you can see that is still close to $800, just below $800 above the 2020 figure. So overall, we would see that inflation is kicking in especially during the COVID where we all have to fight the pandemic and our ships are calling different ports and different ports would have different requirements in terms of arranging discharge of cargoes, change of crews in light of COVID. So I believe you would all appreciate that.

Having said that, we will continue to do our best to drive costs to a reasonable level. We always obviously, just like any other business, we always try to minimize costs and maximize revenue to the extent possible. On the outlook, I couldn't -- we couldn't see too far because we live in turbulent times. But at least in coming months or I dare say within 2022, supply/demand remains in favor of the freight market. We also have to be very, very careful and nimble on our expectation of the pandemic. You can recall end of 2020, early -- even early on this year 2022, COVID seems to be brought under control, but with the latest Omicron spread, which has risen quite rather quickly and extensively across all countries. This means tight controls at ports. So we are going to be very, very careful of this. This would add cost to run our vessels as well as longer time in terms of loading and discharging of cargo. Again, depends on which angle, which perspective you look at it, this also means that there's some kind of COVID-driven congestion if you get what I mean.

Geopolitical tenders remains to be intense as I say. There are additional events. This happened recently. So nobody could predict what is going to happen, but -- for us, in shipping, we are always very, very cautious and we do expect volatility going forward. In terms of tonnage management, we have been buying vessels for -- in the past year to increase to build up our fleet and to increase higher income.

However, if you now -- if you see that some vessels do -- are getting rather unfavorable in terms of the old age. And ships at the end of the day, machineries. They do have some kind of useful life if you extend it too much. The cost of maintaining them will be high. I would use an example. For example, we have a ship at Atlantica, it's a very old ship. In a good environment, we are making fairly good income irregardless of age of the ships. But however, from the longer-term perspective, we -- the older vessels, if an opportunity arise, we may have to sell it off because as a long-term shipping -- shipowner, we do have to retire older vessels and bringing some younger vessels to manage the fleet age profile.

Some older vessels, obviously, because of their condition, the need to spend a lot of money to upkeep and maintain, their value would be -- I would say that their value is not so high. And at the same time, the room for asset appreciation has run out. That's all from me. So if you had any questions, please fire away. I will unmute you guys now or you can type your questions on the chat.

[Wei Ching, executive]

Thank you for your question. I'm just going to read it out. Can you provide details of the mix of long-term charters and voyage charters, average length of TCEs.

First question. I do not have the exact mix right now. We will do so maybe in the next reporting period because only very recently, we have entered into a longer term TCEs. We do not -- we have not been doing any voyage charters, i.e., contracts of affreightment at all, at this moment. Recently, we have been entering with a very, very strong market. We have entered into some longer-term contracts like 4 to 6 months, 6 to 7 months type of contracts. But I would say probably, right now, we have 25 vessels, maybe around 20% or maybe about 5 vessels. We have entered into the longer term -- into these 4 to 6 months, 6 to 7 months contract at very, very good rates.

I would say, without disclosing the exact numbers, high 20s, high USD 20,000 per day. TCE, why so low in Q4. Q4 is the market. The market was -- actually went through -- if you look at the BDI, it reflects the market demand went down in Q4. You can also imagine what happened during Q4, especially for -- it's the overall market as well as for the market that we focus in Asia, for example. Q4 is when China, Beijing were preparing for the Winter Olympics. A lot of industries have slowed down in order to ensure the air is clean, in China for the sake of Olympics for our sportsman.

So -- and also towards Q4 every year now to what Chinese New Year activities would slow down. So I think this reflects in the overall global freight market, but especially so in the Asian markets. Hence, the Q4 TCE would be lower for Supra.

Overall, Asian markets versus the rest of the world, there will always be price discrepancies. If you look at the -- in the shipping world, we describe this as Pacific versus the Atlantic, i.e., the east side of the world versus the west side of the world. You can imagine -- I wanted to explain this in terms of science, the equilibrium. Let's say, if there are lots of vessels in Atlantic and there's a shortage of vessels in the Pacific. As demand rises in Pacific, the Pacific rates will shoot up and vice versa on the Atlantic side. It's actually -- it all sounds very complicated, but it's actually very, very big. It's just very simple how -- where the -- there's too many ships in 1 particular location at 1 point in time. So eventually, they will balance out. Thank you, Teresa. Any more questions?

Ukraine-Russia situation. To be honest, it's a million-dollar question. No. Multibillion dollar question actually. I don't know. Obviously, any war would disrupt the shipping trade. I think you can read on the news already that the Russian-Ukraine situation has caused a lot of commodity imports disruption because of the Swift ban.

I don't know, from our perspective, we are a business organization. We just have to react accordingly to how the world is -- the events and of the world. But obviously, from a human, humanitarian or personal perspective, I hope that all parties will just sit down and negotiate and let's all do business and make money in peace.

Mr. Anderson, dividend policy. No, I do not -- we do not have a fixed dividend policy, still no right now. As far as I -- we are concerned, at least right now from the Board of Directors instruction is that given the volatility of the markets as well as the world, we just -- we need to remain nimble and decide on dividend policy, depending on the prevailing performance of the company of our financials as well as the expected outlook at any given point in time.

But having said that, you can see -- I hope you can see our warm intention when we have positive results, we do want to share with our shareholders who have been supporting us. We always consider external analyst coverage, but I believe that analyst coverage would depend on whether the sales and trading investors is making enough trade -- trading revenue before they are sign analysts. So this is not something that is under my control. There's a bit of a conflict of interest, if I'm buying it as a service, my friend?

We know all the Norwegian securities house, they do talk to us. It's up to them what they would like to issue a research report. Any further questions?

The secondhand market has somewhat slowed down recently, it's -- is not as frenzy as it was during certain parts of 2021. We have to monitor the market very carefully -- constantly in order to identify favorable purchase. So right now, I would say at this very moment in time, we don't. That's why we have to be very opportunistic and monitor the second half market very carefully. If we have any plans of the share buyback, we will announce it through the company's announcement via the Oslo Stock Exchange. Any further questions?

If there are no more questions then I'll close this event. Any more questions? Okay. Thank you very much. Thank you for calling in, and we'll continue to work our a** as hard. And hopefully, on the next announcement, we'll report further good news. Thank you very much again. Good evening, and good morning.