Jinhui Shipping and Transportation Ltd

OSE:JIN

Earnings Call Transcript 2022-Q4

[Wei Ching, executive]

Good morning to those in Europe and good afternoon to those in Asia. I'm not sure about the time in North America, if there are any. It's probably middle of the night, so I don't expect anyone from North America. Thank you very much for joining Jinhui Shipping and Transportation Limited Q4 2022 and 2022 Annual Results Presentation.

Still someone coming in. If anyone has problem hearing me, please indicate in the message box. Okay. I believe all of you would have a copy of the fourth quarter report as well as the preliminary annual results. So I shall go ahead.

For the Q4 2022, revenue for the quarter was USD 30 million. There's a net loss for the quarter of USD 47 million. This is mainly due to a noncash impairment loss on owned vessels of USD 49 million. And hence, there's a USD 0.428 loss per share. I think on this impairment, I will talk more about it later in the presentation.

Can anybody else not hear me? There doesn't seem to be any problem from anyone else. Thank you, Lawrence, thank you. Mathias, I suggest you to check out your computer, phone or iPad settings or whatever it is.

Thank you, thank you. For the year 2022, we had revenue of USD 152 million. Net loss for the year ended up at USD 7 million. This included a noncash impairment loss on owned vessels of USD 49 million. EBITDA was at USD 36 million and there's a basic loss per share of USD 0.065. Gearing ratio is very low at 5%. And we decided to still go propose a final dividend of USD 0.04 per share. And if you consider the interim dividend of USD 0.03 per share, the full year 2022 dividend is at USD 0.07 per share. Obviously, we took into consideration, although accounting-wise we are making a loss for the year, but this is due to the noncash impairment.

I have comments from investors or even market like saying that this impairment might be a little high. But again, I think our hands are a little strapped here. This time because the auditors which we have been using many, many years has been extremely strict for the past, especially past few years. So if you look at a certain period back, we revalued the assets up, and this time we have to revalue the assets down. So this kind of introduced some non-P&L volatility. We see that this is not ideal, and we hear comments from the market and analysts. We'll look into this and talk to our auditors accordingly going forward.

Let's get back to the presentation. For 2022, we reported a consolidated net loss for the year of USD 7 million. Again -- actually, I don't want to go through this point, it's repetitive, because of the impairment. Chartering revenue increased 16% to USD 152 million comparing to USD 131 million in 2021. Obviously, there was a good rebound of market rates during the first half of 2022. And because of our activities, in terms of our fleet, we did increase a number of owned as well as one chartered-in vessel. So this together, also considering there was downward pressure, downward correction of freight rates during the fourth quarter of 2022, we still recorded a respectable increase in revenue.

However, if you look at the TCE, the time charter equivalent, the reported average time charter equivalent of our fleet was USD 18,813 per day as compared to USD 19,233 per day for 2021. In fact, I can share with you that the freight correction during the latter part of 2022 as well as the beginning of 2023 was quite harsh -- has been quite harsh. I mean, it's very clear that there's a slowdown of economic growth due to high inflation. There's an increase in the interest rate, COVID-19-related issues and, of course, there are multiple geopolitical issues that affected the overall sentiment and, hence, economic activities during 2022. And those issues or negative issues started to have their effect on the latter half of 2022.

There's an increase in shipping-related expense of 53%, mainly due to increase in vessel operating expenses such as crew cost and other pandemic-related manning expenses, as well as the increase in number of owned vessels as compared to last corresponding period. COVID-19 continued to impact the running cost of vessels in 2022, and this is especially true in crewing. Now that pretty much the entire world is putting COVID-19 behind us, let's hope that COVID-19 will not come back to haunt us again. We hope that we will see a gradual decrease in these expenses going forward. At least, for example, all these special measures, going to listing ports in terms of loading cargo, discharging cargo, where you need to do this test, back home test. If anybody is affected, then you need to take them the hospital, blah, blah, blah. All these measures, let's hope that these will not return.

In 2022, we entered into a charter party for leasing newly 2022-built Kamsarmax for 7 years. The vessel was delivered to us at the end of June 2022. During the year, we draw down secured bank loans of USD 66.9 million to finance the acquisition of vessels. And at the same time, we repaid USD 76.6 million of bank borrowings. So for the year 2022, we had a CapEx of USD 140.6 million, mainly on acquisition of vessels, dry docking and ballast water treatment systems. All in all, we can consider our exercise was a fleet renewal. So we took delivery of 5 vessels and disposed of 5 vessels during the year. So the net-net to overall fleet size has not really changed.

This page, I think, is pretty much self-explanatory. I don't see any items that needs to be gone into detail. Obviously, Q4, again, because of this noncash item, resulted in operating loss. The BDI has been going up. The pay to market has been going up. So if we look at the current market right now, it seems like it [indiscernible] [ made more sense ] that the fleet value would have been revalued upwards again. I mean, there's a problem with quarterly reporting where our auditors would always be very, very, very strict. They have the accountability, and they try to reflect the value of assets at the end of the quarter as much as possible. So sometimes, to a certain extent, I think, because of rules and regulations, that this swing in the P&L, because of revaluation of assets, has been overexaggerated or amplified. We'll look into this problem going forward and discuss with our auditors to see how we can improve this.

Our total assets as of 2022 now stands at USD 338 million. We have secured bank loans of USD 82.838 million. The current ratio is at 1.64:1. The net gearing was at 5%. Working capital of USD 34.15 million, and we have USD 61 million available liquidity right now.

This is a new design for our [indiscernible]. I hope you like it, brings some fresh graphics to the presentation. And here's the list of the 24 owned vessels we have. We're trying our best to take advantage of any opportunities we see in the market to continue to renew our fleet, not necessarily expanding the size, but revitalize, i.e., probably if the opportunity is right, the timing is right, we will sell off some older vessels and at the same time buy in younger vessels to reduce the overall age of our fleet. I think this is important because overall we need to try to maintain a younger fleet to increase our competitiveness.

And this is the chartered-in vessel, 84,000 deadweight tons. It really should be called a Kamsarmax, really. We have 3 ships outstanding in terms of requirement to install ballast water treatment systems. Two of them is scheduled to be done in this year, year 2023, and 1 to be installed in 2024. I mean, if we don't rule out it possibly, that if the timing is appropriate, then we'll also install Jin Gang earlier, if such arrangements prove to be possible.

So total debt as of end of December 2022 is USD 83 million. 57% of that will be repayable within a year -- oh sorry, that's in 2021 -- 41% is to be repayable in 2022, 19% will be repayable between 1 to 2 years in 2022, and 40% will be repayable within 2 to 5 years.

So in terms of cargo mix, 81% of the cargo we carried are the minerals, 12% coal. 6% steel, and 1% agricultural products. In terms of loading ports, 83% of our cargoes are loaded in Asia excluding China, 8% out of Australia, 1% North America, 1% Europe, and 7% China. In terms of cargo discharging, 80% of our cargoes are discharged in China and 20% are Asia excluding China.

The next chart is the TCE of our fleet. So for Q4 2022, the Post-Panamax/Panamax fleet TCE is USD 16,168 per day. For the Supramax fleet, in Q4, the TCE is USD 12,591. The average is USD 12,879. And if you compare that with the full year 2022 TCE, there's a market drop, significant drop. This obviously shows how much pressure the freight market was in during Q4 and actually in the beginning of 2023. I think for the past few days, there are signs of improvement, and we hope that will continue.

For Q4 2022, the running cost is USD 5,920; depreciation, USD 4,314; and the finance costs are USD 183. If we look at the full year, the running cost is USD 5,656 per day; depreciation, around USD 4,000, just about north of USD 4,000; and the finance cost of USD 155 per day. As I mentioned before, the current expectation is that with COVID-19 pretty much behind in all countries, at least from a COVID-related issue, the additional expenses, because of port requirements due to COVID will be gone. So that would reduce some running costs. We also hope that inflation will be under control, where this would also reduce our running costs.

In terms of outlook, I think it's no secret that the dry bulk industry is very, very much affected by the global economy. And if we dissect at one level down, especially important is the economic growth or economic outlook of China, given China has been the biggest raw material importer for the past, I would say, almost 30 years. So if you look at our operation, it still shows very much vibrant activity on particular cargoes that we carry anyway. But at the same time, this is a double-edged sword. So from this perspective, I think we are, and I believe all dry bulk operators and owners will be right now waiting for economic stimulus policies, especially out of China.

Having said that, the geopolitical conflict in our world right now obviously is very, very complicated with political conflicts with the Ukraine-Russia situation. Obviously, events like this drive down confidence -- drive down business confidence. It does not only disrupt the trade patterns, but they also disrupt and erode confidence. So we hope that in 2023, there will be some positive development this side where there will be less conflicts in our world.

In terms of our own industry, I think there's one relatively bright spot, which is, there is low number of newbuildings, i.e., the supply side is in check. From our perspective, we believe that offers some downside protection. Although the overall global economic growth or the economic growth of China is something that keeps us awake to worry about. At the same time, when there's low number or limited newbuildings supply coming online, this offers downside protection in our industry. There will always be a solid requirement in terms of raw material transport. Let's say, certain countries normally will slow down the demand, but at the same time, there will be other countries increasing the demand. It's a very, very solid demand requirement because our industry is to fulfill very basic needs: Energy production, food, basic industrial activities. The raw materials that we're transporting are for those activities. So there will always be a base demand.

As I said, recently, measures to battle COVID-19 pretty much all lift off. So the whole world, I think, are resuming back to normal business as usual. But I think this actually will take time to show its effect. So this, from our perspective, obviously matches especially on managing the cost side. We hope that as this lift off of COVID-19 measures, not only that in the past few years, the extra cost to battle the virus will no longer be required, the resume back to normal activities of everyone, from consumers, travelers, to business would somewhat stimulate economic activities. So the effect will be increase in demand as well as a reduction in cost, we will see.

At the same time, I think the short-term volatility, we have to -- we will be expecting. I have to confess that it's very, very hard to read the outlook. The world is getting more and more volatile. So in the short term, I think there are so many things that could happen that I believe I definitely cannot predict and most people cannot predict. If you look at, for example, a few weeks back, they're talking about -- the market is talking about U.S. dollars interest rate capping and ready to come down. A few weeks later, you're talking about no, the Fed was saying that, no, we are not ready yet. Interest rates, we'll still have to have a few hikes before they can consider flattening it out or reduction. So all these, from economic to political events, could affect our market.

At the same time, I think overall, on a more longer-term perspective, we are positive. The supply of vessels is low, or at least -- let me put it this way, we are positive as long as the supply of new vessels remains low. I think this is the case. Owners have been very hesitant to order too many newbuildings. I think this is good for a long-term positive outlook until all the clouds are clear. From the industry perspective, one of the most important factor that's hindering newbuildings orders is regulations. Until we are clear about how the regulations will affect future engine and vessel design, I think the ordering of newbuildings will be somewhat muted, which is positive in terms of freight.

So what we are going to do is we will continue to be on looking out for possible fleet renewal when opportunities will arise. But in the short term, I think we will need to be a little defensive given the uncertainty and volatility that we expect to see.

That's all from me. If there's anyone who has any questions, please let me know.

[Wei Ching, executive]

Here, a couple of questions. Well, actually, no, this is not a question. Actually, they're teaching us how to run our company. Thank you very much for your comment, Paul.

The next question is, what is our strategy regarding disclosing our fleet towards spot for time periods? I think you mean chartering out, not disposing. Disposing in my vocabulary means to sell. I think right now we don't see any time period opportunity or they are not attractive enough from our perspective. Again, you may disagree. But obviously, as the market becomes more vibrant, the demands recover, there are lots of inquiries, we will consider deploying part of our fleet into longer-term time charter periods in order to secure more revenue visibility.

In terms of when you say meeting the IMO demands, right now, I think the reason why owners are shying away from newbuildings is because they do not know, if they buy a ship now, let's say, a 2023 built, 2024 built, is such design sufficient to meet future demands? So from our perspective, although we don't rule out newbuildings going forward, but at least right now, I think, we will be inclined towards buying new or young secondhand tonnages and sell off if we are to renew. And if the price is right, again, we'll sell off some older tonnages. I hope that answers your question.

Last week, BDI has experienced a huge rebound. If we have any insight to share? Will the upward trend continue? Any positive impacts on January? Well, I think most of our ships are on spot. So if such rebound is to continue, yes, definitely, we will benefit from such rebound. In terms of why there's such a rebound, I think, to be honest, as I said, the freight rate or the freight environment has been correcting since the latter part of 2022. It's because of sentiment and it's because of economic activity -- or the slowdown of economic activity. As I mentioned just now, I think COVID is behind us all. I think I can confidently say that this is global. So if, at least on this front, the virus or the pressure from battling virus is off our back, people are doing business or slowly reverting to business as usual. So again, a rebound in the BDI is probably long due.

Anyone has any other questions? Fire away.

Can you tell why the Board told investors to be careful and exercise caution when dealing in the shares of the company? This is a rule under the Hong Kong Stock Exchange. Whenever there's -- let's say, when we turn from a profit to a loss, regardless of whether it's a noncash item, like ourselves, this is a revaluation of assets that caused a loss, we would have to warn investors using this statement. I know it's very strange. This statement is like assuming investors are -- or some investors cannot read financial statements. But obviously, for you guys, it's not the same. So it's a regulatory requirement, whenever there's, like, you can say, abrupt changes to the financial performance, obviously, from profit to a loss, this is how they interpret it.

Any further questions? You are worried about extreme weather. Are ships and operations secured and measures taken to avoid incidents related to extreme weather? Definitely. For example, our ships -- we'll always -- we run our operations in-house from technical to chartering. And every time, before we take on, let's say, a spot contract, we will check whether the route -- or whether there will be any weather system in between. And we definitely do not allow any charter contracts that go beyond the IWL, where there will be icebergs and stuff, because our ships are not ice class. So no, do not worry about extreme weather in terms of where our ships operate. We have been and always will continue to watch out for this weather risk. I personally worry about whether there's snow in the snow resorts. I'm a very passionate snowboarder, so I worry about that more than this. So there you go.

Sure thing. I hope you guys can also feel the sincerity of Jinhui's Board of Directors. I mean, despite reporting a loss, and because we know it's because of revaluation in terms of assets, it is a noncash item. We never thought about using this excuse and not issuing a final dividend. So I hope that you can also feel that we are very sincere. It may not be -- depending on what costs you purchase our shares, of course, but we hope that as long as the operating environment is good, we will continue to share our success with our shareholders.

Okay. If there are no further questions, then I'll call this an end. I'll give you 10 seconds. Okay. Thank you very much. I hope you guys all resume back to normal after COVID like the rest of the world. Should you have any further questions, please e-mail me. Otherwise, have a good day. Thank you.