Okeanis Eco Tankers Corp

OSE:OET

Earnings Call Analysis

OET Reports Strong Q3 2023 Results and Growth

Okeanis Eco Tankers (OET) announced a productive third quarter in 2023, achieving a fleet-wide time charter equivalent of nearly $49,000 per vessel per day, leading to a notable net time charter equivalent (TCE) revenue of about $60 million. This performance marks a consistent return for shareholders, with a sixth consecutive capital distribution of $0.60 per share, aligning with 100% of the quarterly earnings per share. Year-on-year, the company witnessed a 115% jump in TCE revenue, more than a 150% increase in EBITDA, and a surge over 240% in reported profits. OET maintains a strong financial position, with $82 million in cash and a market-adjusted net present value leverage of 46%. Anticipating the future, the firm prepares to announce refinancing plans for the Milos vessel in the next quarter. The Q4 outlook started weakly but steadied, projecting earnings from long-haul crude movements and positioning for substantial gains in Q1.

Okeanis Eco Tankers Reports Solid Results Amid Seasonal Downturn

Okeanis Eco Tankers delivered a robust performance in the third quarter of 2023, set within the historical context of variable seasonal impacts. Despite Q3 being typically shorter, the company reported strong earnings. With a fleet-wide time charter equivalent (TCE) of nearly $49,000 per vessel per day, including $58,000 for Very Large Crude Carriers (VLCCs) and around $39,000 for Suezmax tankers, they exhibited a sturdy market presence with both categories outperforming industry peers.

Financial Highlights and Shareholder Returns Highlight Commitment to Value Distribution

The third quarter's adjusted EBITDA approximated $45 million, with a reported adjusted net profit of $0.63 per share. In a show of confidence and continuity, the Board declared a sixth consecutive capital distribution, indicating a strong financial standing and a commitment to shareholder returns. Overall, $3.70 per share was distributed over the last three quarters, totaling about $120 million, representing a 473% total shareholder return since IPO with a remarkable 96% average payout from earnings during the most recent quarters.

Strong Financial Fundamentals with Strategic Refinancing

Okeanis Eco Tankers boasted a healthy cash reserve of approximately $82 million and a manageable debt situation at $704 million. With market-adjusted net present value (NPV) leverages standing at a comfortable 46%, the company employs strategic refinances to improve capital structure. Notable refinancing at sub 2% margin levels for Suezmaxes reinforces their financial acumen. The company anticipates updating refinancing plans for legacy leases, expected to be significantly accretive to their terms.

Market Positioning and Asset Employment Amid Volatile Quarter

Q3 saw the Suezmax rates fall with strategic decision-making minimizing the impact of weak market conditions. Repositioning vessels and committing to higher yield front haul voyages helped weather a quarter that would have otherwise been materially better without the dry docks. The TCE revenue book for Q3 fell in line with accounting standards even considering non-revenue dry docking days. Forward-looking, they expect to offset Q4's weak start by high earnings in Q1 through proficient ship positioning.

Expansion Plans and Future Outlook

The company is taking steps toward international expansion by pursuing a listing on the New York Stock Exchange under the ticker ECO, projected for December 2023. The financial performance, combined with this expansion initiative, demonstrates Okeanis Eco Tankers' aim to enhance market reach and stock liquidity. With investments from oil majors signifying a strong industry future and geopolitical events creating new trade routes, the supply-demand dynamics favor the company's growth trajectory.

Maintaining Steady Earnings Despite Seasonal and Dry Docking Impacts

The management remains confident in maintaining robust earnings moving forward, leveraging an optimal vessel mix and strategic employment profiles. They are prepping for strong Q1 earnings that anticipate market recovery with higher rates for long-haul voyages and efficient vessel utilization. Despite a softer Q3 and a guided weaker Q4 due to strategic backhaul trips, the overall outlook is positive with expected strong performance in the upcoming quarters.

Adapting to Global Oil Market Shifts and Anticipated Demand

The lifting of U.S. sanctions on Venezuelan oil exports is set to increase market ton-miles, influencing freight rates favorably. With an eye on the robust Chinese imports and the unchanged import quotas for the upcoming year, Okeanis Eco Tankers believes new trade dynamics will strengthen tanker demand. The intersection of increased crude production and diminishing shipyard capacity is forecasted to sustain higher future earnings, positioning the company advantageously for future market conditions.

Earnings Call Transcript 2023-Q3

[Operator]

Hello, and welcome to the OET's Third Quarter 2023 Financial Results Presentation. We will begin shortly. Aristidis Alafouzos, CEO; Iraklis Sbarounis, CFO; and Konstantinos Oikonomopoulos, Chief Development Officer of Okeanis Eco Tankers will take you through the presentation.

They will be pleased to address any questions raised at the end of the call. [Operator Instructions] I'd like to advise you that this session is being recorded. Iraklis will now begin the presentation.

[Iraklis Sbarounis, executive]

Thank you. Hi, everyone. Welcome to the presentation of Okeanis Eco Tankers results for the third quarter of 2023. We will discuss matters that are forward-looking in nature, and actual results may differ from the expectations reflected in such forward-looking statements. Starting on Slide 4 and the executive summary. I'm pleased to present you the highlights of the third quarter of 2023. Q3 is a historically shorter quarter due to seasonality. Our fleet achieved fleet-wide time charter equivalent of almost $49,000 per vessel per day, and that includes our time charter vessels.

Spot days for VLCCs stood at about $58,000, while for Suezmax at about $39,000. We record net TCE revenue of approximately $60 million, adjusted EBITDA of about $45 million and adjusted net profit of $0.63 per share. Our Board has declared a sixth consecutive capital distribution of $0.60 per share, which is 100% of our reported quarterly EPS.

We continue to deliver on our promise to distribute all available value to our shareholders. And in relation to the last 3 quarters, we have distributed $3.70 per share or a total of approximately $120 million. This quarter also marked a very important milestone for our journey as we have publicly filed a registration statement with the SEC to list our shares on the New York Stock Exchange.

On Slide 5, we dive into the details of our income statement for the quarter that I summarized on the previous slide as well as the 9-month period. For the first 3 quarters, we achieved TCE revenue of close to $240 million. That's a 115% increase year-on-year. EBITDA of close to $200 million, that's over 150% increase year-on-year and reported profit of approximately $124 million. That's over 240% year-on-year.

Moving on to Slide 6. As of the end of September, we had cash on our balance sheet of approximately $82 million. Our debt stood at $704 million. Book leverage came in at 60%, while market-adjusted NPV based on broker values stands at more than comfortable 46%.

On Slide 7, we're bridging our cash flow for the 9-month period, essentially delivering all of it to our shareholders. The next slide, Slide 8, fully demonstrates our commitment and strategy towards maximizing shareholder value. On the left-hand side, we have recalculated our total shareholder return since inception, which sits at an astonishing 473%. This assured distributions are conservatively invested into the stock, yielding a $48 per share return to a 2018 investor. That's when we executed our IPO. And this does not actually include the distribution we expect to pay out later this month.

On the right-hand side, we show our history of distributions against our reported EPS. Since Q2 of 2022 with a fully delivered fleet, we have been able to gear up to an average payout of 90% of our earnings. In relation to the last 3 quarters, this amounts to 96%.

Moving on to Slide 9. it summarize our corporate and capital structure as well as our employment profile. Last quarter, we had just announced the refinancing of 2 Suezmaxes and 1 VLCC at sub 2% margin levels. I'm pleased to confirm the most recent refinancing we did in September over 2 Suezmaxes, the Nissos Sikinos and Nissos Sifnos at accretive terms at 185 basis points over SOFR and extended maturity to 2029.

As we have talked about in the past, a key margin or capital structure is the opportunity to refinance our legacy and expensive leases on the Milos and the Poliegos. We are already in discussions with financiers and are confident that we can achieve tremendously accretive terms versus the current financing terms, in line with the momentum we have from our last 2 recent transactions.

We expect to be in a position to announce at least a plan for the Milos in advance over next quarterly call. We, of course, continuously utilize our strong banking relationships to explore opportunities that enhance our capital structure and create value with both existing and new balances.

On the employment front, the Nissos Sikinos and Nissos Sifnos are still employed under the long-term time charters, and we expect them to be delivered to us towards the end of the quarter.

On Slide 10, I wanted to spend some time on the New York Stock Exchange direct listing process. As discussed, we made the public filing of our 20-F last week. Our ticket in New York is expected to be ECO, while in Oslo will continue with OET. We will be keeping the market updated with all developments over the next weeks as we're tying up mostly mechanical steps before we can request effectiveness by the SEC.

We currently expect the listing itself to take place sometime during December. We're excited to have this important milestone behind us and look forward to expanding our reach with U.S. investors and, overtime, enhance liquidity for our stock. We aim to continue on our track record of shareholder trust as we have done since our IPO in Oslo in 2018.

On that note, I pass over the presentation to Aristidis for the commercial and market update.

[Aristidis Alafouzos, executive]

Thank you, Iraklis. So on Q3. Q3 was a weak quarter in the context of the last 18 months. And it was the first quarter where there were quite weak Suezmax rates as well. They dropped significantly into the summer. Our strategy of keeping vessels in the West was useful as we did commit 4 of our vessels on front haul voyages East to lock in much higher returns and round voyage equivalent.

As part of our strategy, we would then reposition the ships back to the West to keep our preferred balance of tonnage. The Suezmax earnings were also negatively affected as we had to position the vessels for dry dock. To do this with the 2 suboptimal voyages near the dry dock location. In addition, when a vessel exited the dry dock, it is not preferred for her next voyage.

So again, post dry dock, we were forced to choose suboptimal voyages in order to get the vessel cleared of its ex-dry dock status. If we did not have the 2 dry docks in Q3, obviously, the earnings would be materially higher. During the quarter, we achieved a fleet-wide TCE of $48,900 per operating day, including our time chartered.

And our VLCC generated 57,900 per day on spot market. This is a 36% outperformance relative to our tanker period that I reported Q3 earnings. Our Suezmaxes generated $38,700 per day, which is on par relative to our tanker periods that I have reported Q3 earnings. These numbers reflect our actual book TCE revenue within the quarter as per our accounting standards, which also includes several days related to the Suezmaxes dry dockings, which we cannot record any revenue.

Moving on to Slide 8 for guidance on Q4. Q4 started quite weak but has firmed nicely now. Fixtures being concluded today and will reflect more on our Q1 earnings and the end of our Q4 earnings. So to give you where the VLCC market earnings are, a round trip in the West today is anywhere between $80,000 and $100,000. Backhauls from the East to the West, whether through West Africa or the AG to Europe are around 40,000.

And the long-haul voyages East are above $100,000. We have fixed 4 vessels this week in these ranges. We see strong long-haul movements of crude with the Atlantic Basin, again being the driver of VLCC permits. After long summer, the U.S. Gulf and West Africa woke up and became active on Suezmaxes as well with huge increase in rates.

Our Q4 guidance is negatively impacted by some of these back haul voyages we mentioned. And this, we expect will be offset by positioning our vessels for strong earnings in Q1 with front haul fixtures. So far in Q4, we have fixed 75% of our fleet-wide spot base at $44,400 per day. 90% of our VLCC spot base at $40,900 per day, which is a 13% outperformance and 49% of our Suezmax base at $44,400 per day, which is a 72% outperformance.

Looking at Slide 14. Earlier this quarter, the United States announced the lifting of sanctions on Venezuelan oil exports. This is an important change to the market that will create additional ton-miles. The dark fleet that was servicing Venezuelan exports fleet will now have to complete for Iranian barrels, pushing pressure on freight rates and that trade as well.

While the Venezuelan exports will now move on normal tonnage. I do believe that India and China will try to absorb as much of the Venezuelan volumes as they can as the refineries are designed to process this kind of crude. Each VLCC loaded for China or India is an additional VLCC voyage that has been created.

India will be substituting crude from the AG to import Venezuela and then -- and the displaced AG crude will now by definition, have to move a further distance, either to the Far East or the West, which is also positive in ton-miles.

Moving on to Slide 15. The importance of reliable and affordable oil in our society is evident in the short term by the political actions by both the United States and Europe, European governments in Venezuela as well as Russia with regard to the price gap, while also in the medium term by the oil majors that we see at the market consolidate.

Both Chevron and Exxon have both spent over $50 billion each to acquire oil producers to support the production levels over the coming years. This trend is expected to continue by other oil majors with the market further consolidated.

On Slide 16, we see the intersection where oil majors are committing and focusing their expenditure on oil production while global shipyards are declining and the forward order book covers is in its historic high. This is an excellent setup for our company and the crude oil tanker industry for the coming years.

On Slide 17, looking at the order book and pricing a bit more closely. We find the VLCC and Suezmax potentially extremely exciting. Given the supply side of the equation, it is very difficult to see scenarios where we will not see sustained higher earnings for the coming years. We strongly believe that values have a lot of upside potential, especially on modern second half. We are nearing the point of sustaining high earnings, and these will have to be factored in when pricing the secondhand vessel versus new building.

Overall, Q3 and Q4 guidance were weak quarters for us, but the company achieved another milestone in its progression with the public filing and the expected dual listing in 2023 in the New York Stock Exchange. We look forward to presenting in 3 months with our Q4 earnings and Q1 guidance. With this, we conclude the presentation, and happy to answer any questions.

[Operator]

[Operator Instructions] Our first question comes from the line of [indiscernible] from Clarkson Securities.

[Unknown Analyst]

I just wanted to touch up on the demand side. We've seen some news recently about Chinese crude import quotas or rather the lack of those. Are you seeing that as an issue for crude tankers going into the fourth and first quarter?

[Aristidis Alafouzos, executive]

I mean, I didn't hear you very clearly, but my understanding was that you asked if we see issues with Chinese demand and if there's been a reduction of cargoes heading for China? At the moment, we have a -- October, November were very busy months for Chinese export -- for Chinese imports from cargoes loaded both in the Atlantic Basin, Brazil, U.S. Gulf West Africa. So we don't see anything materially different, but these things do fluctuate month-to-month. So December may be a bit lower, I'm not sure. But we don't see any material changes in Chinese import anymore.

[Unknown Analyst]

And you don't expect that to change going forward as well because we've been reading a bit about this lack of new crude oil import quotas compared to previously? So you're not seeing any effect in the physical market on that side?

[Aristidis Alafouzos, executive]

Well, I mean, the crude import quotas that they issue, in the past they have issued an additional crude import quota for the end of the year. But at this point, if you're loading a cargo you're working [indiscernible] that are -- by the time you lift the cargo, whether you're in the AG or even more so in the West, you balance the low port, lift the cargo and discharge in China, you're already in the next year. So the crude import quotas today are important for the following year rather than the additional quarter that would apply for the year of 2023.

[Operator]

[Operator Instructions] There are no further questions, so I'll hand you back to your host to conclude today's presentation.

[Aristidis Alafouzos, executive]

Thank you. Thanks, everyone, for joining. We look forward to speaking in 3 months. Thank you. Bye-bye.

[Operator]

Thank you for joining today's call. You may now disconnect your lines.