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Edited Transcript of JIN.OL earnings conference call or presentation 29-Aug-19 8:30am GMT

Q2 2019 Jinhui Shipping and Transportation Ltd Earnings Call

Hong Kong Sep 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Jinhui Shipping and Transportation Ltd earnings conference call or presentation Thursday, August 29, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Wei Man Ching

Jinhui Shipping and Transportation Limited - VP

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Conference Call Participants

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* Philip Tadayoni

* Holly Birkett

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Presentation

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Wei Man Ching, Jinhui Shipping and Transportation Limited - VP [1]

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Good morning, everyone, in Europe, and good afternoon to those in Asia. This is Raymond Ching from Jinhui Shipping.

Firstly, I would like to apologize to -- with regards to the hiccup on the information on the conference call. Our conference account somehow had a problem, but we have sorted that. Our sincere apology on that front.

I believe you would all have these results as well as the presentation. So I shall not hold up any longer. If you would [slip] to the presentation for the highlights Q2 2019. Revenue for the quarter is USD 14 million. We have recorded a net loss for the quarter of USD 1.1 million. The free cash flow to EBITDA is at USD 3.8 million. The basic loss per share is USD 0.01. And the gearing ratio as at June 30, 2019, is at 3%.

There's a drop in revenue mainly due to a weaker freight environment and a reduction in the number of owned vessels from 23 as at Q2 2018 to 19 as at Q2 2019. We did have a contract to acquire 2 secondhand Supramaxes at a total consideration of USD 12 million in the second quarter. The first one was delivered in May 2019. But the second one was terminated due to the time up. Well, the delivery of the second vessel could not be fulfilled by the seller. The deposit was refunded to the group. During the quarter, the group drawn new secured bank loans of USD 16 million for working capital purposes.

On the next slide, that's the financial highlights. I think the numbers are very clear. I would like to point out, there's a typo on the -- 1, 2, 3, 4 -- on the 5th column, which is -- should be first half 2019, not first half 2018. There are 2 columns for first half 2018. The one on the left should be first half 2019.

Now if you look at the -- we've talked about the quarter. So if you look at the full 6 months, for the first half 2019, we have a revenue of $26.8 million. There's an operating profit of $2.9 million. Net profit for first half 2019 is USD 818,000 and there's a basic earnings per share of $0.007. Overall, it's a decline from first half 2018 due to the weakness in the market.

On the next slide on the key financial ratios. The total assets now as of Q2 2019 stands at USD 387 million. Total debt borrowings, USD 118 million. We have recorded a negative of 0.46% return on equity, a negative 0.31% on return on assets, a current ratio of 1.71:1 and a gearing of 3%. Working capital, $54.2 million and the available liquidity is now at USD 109.8 million, almost USD 110 million.

In terms of fleet development, we currently have 19 vessels in our own fleet. And on -- the average age is 11 years old. Due to the upcoming regulations change, we believe it's not a very good time to -- not the best of timing to order any newbuildings at present, which I should talk about that going forward -- at the end of the presentation.

As of Q2 2019, we have a total debt of $118 million. 48% of that is payable within first year, 7% within 24 months, 36% between 2 to 5 years and then 9% over 5 years.

There are some questions from investors about why have we drawn increased debt. We have drawn this increased debt at such a cost and then have placed it into something -- yield enhancements securities to squeeze out some yield, positive cash flow, positive yields to the company. And although 48% of the debt is going to be repayable within the next 12 months, at the same time, these instruments will also be matured in the same period. So we're basically matching with loan as well as the yield enhancement securities.

On the next slide, on the cargo volume analysis, as of Q2 2019, the total cargo carrying volume is 2.84 million tonnes. Of course, there's a drop from Q2 2018 due to the reduction in the number of vessels. 89% of the cargo we carried are minerals with 11% coal. Although it seems like on -- in terms of the cargo diversification, there's not very much, but we have been trying very hard, but always have to consider, we try to maximize the freight rate that we earned on a vessel depending on its location and the route.

In terms of loading port analysis, 89% of the loading ports are in Asia, excluding China, 3% North America, 3% China, 3% in Africa and the remaining 2%, Australia. In terms of discharging port analysis, 88% of our cargoes are discharged at Chinese ports. I believe the [large] who has been following the dry bulk market, especially our company, from our perspective, the Chinese demand in dry cargo has a very, very important -- it's a further important driver to the freight rates from our perspective.

In terms of the time charter equipment of our own vessels, as of Q2 2019, our Post-Panamax fleet reports an $8,711; Supramax fleet, $8,963; and on average, $8,934. This is a slight increase from 2019 -- sorry, apologies, this a decrease from 2018 first half, Q2 or actually the full year.

As we said, the sentiment as -- of the global economy, the U.S. trade war has negatively affected the freight environment. Some may look at even the Baltic Dry Index and see -- able to report that freight weights is higher. But I have to remind you that it actually depends on the age of the vessel, depends on the route, and not all [pictures] are reported and calculated as the average to calculate the Baltic Dry Index.

On the next slide, the daily vessel costs of our owned vessels. As of Q2 2019, we have -- the daily running cost is $3,962 per day. We have been working hard to maintain a low and consistent cost, and as you can see on the chart, we have been doing so. The finance cost is $434, depreciation, $2,138. So the all-in daily cost per vessel $6,534 for Q2 2019. There's an increase in the finance cost in Q2 2019 mainly due to the impact of a rising LIBOR as the group's bank borrowings were committed on a floating rate basis. And we also have a small increase in the new secured bank loans for the current quarter.

In terms of outlook, we see that the trade tension is the biggest overhang that's affecting the sentiment in the shipping market. And because of all these geopolitical events, there's a general fear of a global economic slowdown, and which translates to our industry an uncertainty in the future demand.

On the positive side, with regards to our industry is that newbuilding orders are -- is at the lowest in the decade. On that front, you can imagine demand versus supply because of the small -- of a low number in newbuilding orders, I would believe that is giving the market a strong support at the bottom, at the low end for the best rate.

We've always been observing of the change of regulation and the risk that it poses to us in terms of future operations. Our vessels are primarily in the Supramax sector, and that we have repeatedly said that installing scrubbers, it is not the most attractive of economic options. And in recent researcher studies, we have learned that the spread of the LSFO and the HSFO may not be as large as predicted. There's increasing voice in the market in this regard, i.e., the installation of scrubber.

Firstly, you will have a challenge on whether it's going to be open-end scrubber or closed-end scrubber. And despite -- whichever type that one may choose, the payback period may not be as attractive as one would expect it, not to mention the complexity or the chaos -- potential chaos it would introduce into a time charter party or a charter party between an owner and the charterer.

In terms of future fleet plan, we do see that the market is very volatile. The global economy is very volatile. That's why we did not want to commit to a particular plan as to whether we would definitely be looking for -- to buy further vessels or we definitely will over not adjust our fleet. I'm afraid that because of this anticipated volatility in the global economy as well as the shipping markets, it's very hard for us to lean on one direction. Therefore, we used to what -- we want to remain flexible and nimble.

We have drawn additional funds to show up potential just in case that there will be attractive opportunities. But the attractive opportunity, let's say, in the asset market didn't surface, so we've placed it into some relatively safe financial security, which offer a positive yield after the borrowing costs, and that is what we're doing. Should there be any attractive opportunities -- and that the macro environment is not too discouraging? We will look at those. We're after all -- we are a shipping company.

I think in this very volatile and complex environment, I mean the business (inaudible) half right now for the outlook. But I'm open to any questions which any of you may have.

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Questions and Answers

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Holly Birkett, [1]

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This is Holly Birkett calling from TradeWinds. May I just ask you...

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Wei Man Ching, Jinhui Shipping and Transportation Limited - VP [2]

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Sorry about the mix around the conference details.

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Holly Birkett, [3]

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No. No problem at all. A quick question. I still believe that I got your name in (inaudible) when you started the call. So if I...

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Wei Man Ching, Jinhui Shipping and Transportation Limited - VP [4]

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Vice President Raymond Ching. You can ask [Bob Ross] who I am, then he would know.

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Holly Birkett, [5]

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Okay. Yes, we will. Okay. Perfect. That's all I wanted to know.

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Philip Tadayoni, [6]

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My name is Philip Tadayoni from MediumInvest. You talk about the investment opportunities and how you're going to keep your fleet. What about if you buy back stocks with the stock trading so much below the net asset value? It's equivalent to buying your ships at a really cheap price, much cheaper than you could find any other ship in the secondary markets.

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Wei Man Ching, Jinhui Shipping and Transportation Limited - VP [7]

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I understand what you...

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Philip Tadayoni, [8]

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So when you talk about buying a ship, I don't understand why you do not just purchase large quantities of your own stock when you're trading that ship because...

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Wei Man Ching, Jinhui Shipping and Transportation Limited - VP [9]

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Sorry, what's your name again?

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Philip Tadayoni, [10]

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Philip Tadayoni from MediumInvest.

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Wei Man Ching, Jinhui Shipping and Transportation Limited - VP [11]

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Philip, thank you. Of course, thanks for your input. This is something -- your idea of share buyback is something that obviously has been mentioned by, firstly, other shareholders of ours, including ourselves, we have actually considered this too. But having said that, what I'd like to urge you to think when you're sitting in our shoes, okay? The NAV that you're looking at is a very much snapshot in time.

As I said, we are not sure about the market outlook, to be honest with you. And whether it is -- doing a share buyback is a snapshot in time to a boost in the share value, okay? It's -- of course, it's a very, very positive thing to do that for all shareholders, from minority to major shareholders. But at the same time, it doesn't expand.

For example, if we have cash and let's say, if there's an opportunity to -- that some -- the market is very fragmented. Let's say, there are others, owners who want to give up their ship at a very attractive price, I think buying a vessel and then expanding the absolute cash flow in terms of magnitude, be it a different, a newer type of ship, a larger ship, et cetera, is also on our consideration. So it's given -- I believe you understand where I'm coming from with the limited or very low visibility of how the global economy is going to trend going forward. It's not an easy decision to make. But thank you very much. We will -- this is on one of our lists as well in terms of a share buyback.

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Unidentified Analyst, [12]

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This is [Ars Gillan] from Hong Kong (inaudible). Just one question about the market. So how do you see the sharp increase in Q3 in the market? Do you think it is sustainable in Q4 and the rest of the year?

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Wei Man Ching, Jinhui Shipping and Transportation Limited - VP [13]

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This is a billion dollar question you're asking me. Frankly, I'll give you an answer in twofold. From a very selfish perspective, of course, we at Jinhui, obviously, wish that the market will continue to go north because most of our ships are operating on the spot market. Every time we renew it and if it goes up, it's very welcoming news. And if you look at why the market, the freight environment -- now it's August, why these recent weeks, it's been slowly appreciating, I think it's because -- mainly driven by the Capesize, it's the ton-mile increase as well as certain restocking activities in the market. We do hope that it will carry on.

There is some saying that some -- a number of ships has been tied up in shipyards in China, for example, installing scrubbers. This also reduced the fleet supply because of the U.S.-China trade tension. There are certain commodities that traditionally come outbound of United States to be discharged, to be stuck up by Chinese importers is not happening.

Therefore, these commodities are being seeked by Chinese importers at alternative locations. Therefore, there's a positive ton-mile effect. And therefore, again, this translates to a positive appreciation of freight rates. We hope that will continue. But as I said, we focus very much on shipping, but I have to say, in terms of how to read the international politics, it's really beyond us. It does -- the situation is so fluid that I really wish I have a crystal ball.

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Unidentified Analyst, [14]

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Okay, okay. I understand. So the main drivers behind is both supply side and the demand side, right?

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Wei Man Ching, Jinhui Shipping and Transportation Limited - VP [15]

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Yes. I mean maybe I can touch onto that as well. Of course, when there's a -- when there are arguments between nations. But if you assume that the overall economic activity, which translates to commodities demand of individual countries remain unchanged, that is obviously very, very positive to shipping because the absolute volume of commodities required by these countries has not changed, but the location that they need to acquire these commodities have to be changed. And if that change to longer -- a further location, that means locking up the working fleet for longer, fleet utilization was increased, rate would also increase. We certainly hope that this will be the case. We will be very happy. Right now it's happening that way. But we -- of course, we would be cautious and -- of developments.

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Unidentified Analyst, [16]

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Yes. Yes, we hope so.

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Wei Man Ching, Jinhui Shipping and Transportation Limited - VP [17]

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Anyone has any further questions? Okay. There are no further questions, then I'll call this an end. Again, I apologize for the mixing up on the details of the conference call and the delay in the conference call. Our sincere apology. And thank you very much for dialing in. And if you have further questions on the results, on the market, please feel free to drop us an email. Thank you.