BW LPG Ltd (BWLP) 2023 Q3 法說會逐字稿

Welcome to BW LPG's Third Quarter 2023 Financial Results Presentation. Bringing you through the presentation today are CEO, Kristian Sorensen; CFO, Samantha Xu; and EVP Commercial, Niels Rigault. (Operator Instructions)

Before we begin, we wish to highlight the legal disclaimers shown on the current slide. This presentation, held on Zoom is also recorded. I now turn the call over to Kristian.

Thank you, and hello, everyone, and welcome to our Q3 earnings release. I'm happy to be joined today by our CFO, Samantha, and our Head of Commercial, Niels.

To start off with the highlights, we are pleased to report our highest historical daily TCE at an average of $63,100 per available day. We reported net profit after tax of $122 million, equivalent to earnings per share of $0.85. This is after a downward IFRS adjustment of $24 million. For the third quarter, we are also pleased to announce a dividend of $0.80 per share, which translates into an annualized yield of 22%.

Due to the requirements in connection with our U.S. listing process, we can no longer refer to non-IFRS terms like trading profit for Product Services results or in our dividend policy. And the revision of the dividend policy was necessary since last quarter. Like previously, the revised dividend policy will still be based on the shipping performance and the net profit after tax generated by the shipping segment, while also adjusting for product services performance, cash and capital requirements.

We're happy to answer any questions after the presentation regarding the dividend policy. For the third quarter, 100% dividend payout is sourced from our shipping earnings with an upward adjustment of $0.02. And moving over to subsequent events for the quarter, BW Tokyo is delivered to BW LPG this month after exercising an attractive purchase option earlier this year. The vessel will be on a 6-year time charter starting in Q1, securing a return on capital employed of approximately 18% over the time charter period.

In addition, we're pleased to announce that we have entered into an agreement to sell the BW Princess with delivery first quarter next year. The sale is expected to generate approximately $64 million in liquidity and a net book gain of $20 million.

Further, we're also increasing our operated VLGC fleet which will expand to 45 vessels a Sinogas is joining the pool in the fourth quarter by adding on LPG dual-fuel vessel. And then looking at our market outlook, we reiterate our positive view for 2023 and 2024, although high volatility remains. And the key reasons for this include energy prices that are conducive to continued strong U.S. exports and steady export growth for the Middle East. Further, new PDH plants, which are coming on stream in China, supporting the demand side of the market, and we also see continued growth in the residential sector in the developing world.

We also see delivery of VLGCs to slow down after the summer of '24, and shipyards are booked until first half of 2027. And of course, the much talked about disruptions in the Panama Canal that will continue to absorb capacity from the VLGC fleet. We have recently experienced how ongoing challenges relating to low water levels and persistent drought conditions lead to further restrictions on Canal transits. As mentioned in the earlier presentations, VLGCs have lower priority than LNG carriers and container vessels, forcing them to sell alternative longer voyages from the U.S. to Asia, via Suez or South Africa. And these longer hauls extend the selling days by up to 50%.

While the factors mentioned above paint a positive picture for the VLGC shipping market, it's also important to remind ourselves that things can change quickly. We are watchful of the current uncertain macroeconomic environment and how much this can impact the current strong market environment. Those are the highlights.

Next slide, please. Under the current market conditions, the VLGC sector is generating a dividend potential, which is unprecedented for the segments. Depending on the view of the markets, we have simulated and illustrated the dividend deal potential in this slide. We're also pleased to have returned more than 70% of our earnings and dividends since the IPO 10 years ago. Based on the current share price, we have a 28% annual return to our investors if you had reinvested the dividends in the share during the same period.

And with that, I'll hand it over to Niels to cover the commercial slides.

Thank you, Kristian, and hello, hello to everyone listening. I'd like to turn the focus to Slide 8 in our presentation. Predicting the future is always complex. Particularly when macroeconomics, geopolitics and climate issues are raised at the same time, shadowing an effect-based logical forecast as we experienced this year. 2023 has proven surprisingly robust for the VLGC segment, making a historic high. In the third quarter alone, we witnessed a remarkable 30% increases across all rate indexes, largely driven by sustained high import volumes to China and the widening of the tranche between the U.S. and Far East had also encouraged active trading between the regions.

As Kristian mentioned, a major point of discussion is the Panama Canal. We have observed significant impacts on spot rates due to operational disruptions. At the end of the second quarter, the main reservoir of the canal experienced critical low water levels. Sequent lack of seasonal rainfall lead the canal authority to limit transits for serving water resources. This limitation on VLGC transits, as mentioned by Kristian could result into a 50% increase in sailing days for the fleet trading between U.S. and the East. However, it is crucial to note that the inefficiencies leading to the high rates also translates into increased costs for owners and traders, and burden not easily passed on to the end users.

Looking forward, our supply-demand model suggest a positive outlook for the VLGC market. Of the 43 VLGC new building scheduled for the delivery this year, 75% have already been delivered. We anticipate further growth in LPG export from North America and the Middle East. However, it's important to recognize that several unpredictable factors could significantly influence rate fluctuations as we saw in 2023.

Moving on to Slide 11. Our fleet composition remains robust with 4 to 5 VLGCs despite active sales. As Kristian mentioned, we finalized the sale of another ship this quarter at record levels scheduled for delivery at the end of the first quarter next year.

In addition, we are pleased to welcome Sinogas to our pool contributing to the first dual-fuel ship -- contributing their first duel-fuel ship in the fourth quarter of this year. Their addition underscores the benefits of scale in this volatile market.

Let's move to Slide 13. Our time charter equivalent performance for the third quarter was $63,100 per day for the entire fleet. This figure includes fixed time charters and derivative hedges. The spot fleet achieved a TCE of 81,300 per day excluding waiting days. Given the current market volatility we remain focused on optimal managing our risk. For the fourth quarter, around 79% of our available days are fixed at an average of $73,000 per day. Our spot rate currently stands at $104,000 per day, and we expect a strong final earnings for Q4, reflecting the exceptional hot spot market.

For '24, 19% of our fleet is already fixed under TC with an average daily rate of $41,300. We have balanced our TC in and out commitments in '24, securing a $23 million profit. Additionally, 13% of our days are hedged with derivatives at an average TCE of 59,000 per day. Before handing over to Samantha for the financial overview, I'd like to provide a brief update from Product Services.

In 2023, they have handled approximately 7 million tonnes of physical LPG and about 20 million tonnes of derivatives. Next year, we anticipate a 30% increase in volumes. They have expanded into the midsized space, securing 2 TCs, allowing us to tap into the new market beyond the VLGC segment.

On FOB product contracts, we have renewed our U.S. Gulf equity commitment, but also secured a term contract in the Middle East, diversifying our exposure and mitigating Panama Canal risk.

Now I'll pass the microphone to Samantha for a closer look at our financials.

Thank you, Niels, and hello to everyone on the call. So let me continue to add some color to the product services performance. The net asset value of product services increased by USD 12 million to $44 million at the end of September. This $12 million net profit comprised $34 million realized gain from trading operations and $22 million unrealized mark-to-market losses from cargo contracts and hedging derivatives. This reported net profit does not include the unrealized mark-to-market valuation of our 5 TC in vessels. Our internal valuation of these TC in contracts at the end of September was USD 65 million. This positive value reflects the continued strong development in a 12-month forward freight market for VLGCs, which is the period we used to evaluate (inaudible) positions in product services.

As you can see, the value at risk bar is relatively stable, and the portfolio is well balanced between cargoes, shipping and derivatives from a trading book perspective. We continue to see good collaboration and synergy between product services and our shipping business through improved information flow, optionality and enlarged footprint while focusing on profit. Product Services are also progressing in expanding their fiscal presence in key markets as we aim to broaden the platform and trading portfolio.

Next slide, please. Starting with the income statement. On a consolidated basis, for the third quarter, we reported a net profit after tax of USD 122 million. This includes $16 million profit from BW LPG India and $12 million in profit from product services. The net profit also included a downward adjustment of USD 24 million related to IFRS 15 adjustment, as Kristian has just mentioned. This is because the TCE for the straddling that voyages over the quarter end is recognized on the low to discharge basis. We expect that IFRS 15 adjustments will increase in future periods if freight rates continue to increase from the current level and if the total voyage days increase as the Panama Canal restriction persists. We reported an earnings per share of $0.85 this quarter, the majority of which was contributed by our core shipping segment of approximately $0.78.

We reported a net leverage ratio of 22% in Q3. This was due to a heightened working capital requirement from increased product services activities. The Board declared a Q3 dividend of $0.80 per share, which represents 103% paydown of Q3 and year-to-date shipping NPAT. Our balance sheet ended the quarter with shareholders' equity USD 1,522 million. When adjusting for $480 million excess in broker valuation over book value, we reached an adjusted NAV per share of NOK 150, an uplift from book value of about $3 per share after adjusting for minority interest in BW India and product services. Our positive free cash flow of USD 75 million this quarter was derived mainly from our strong operating cash flows, but offset by a buildup in working capital. Our return on equity and capital employed for Q3 was 32% and 24%, respectively.

Next, we move on to some key statistics on our shipping business. Our daily OpEx came in at $8,500 per day, mainly due to higher maintenance and repair expenses. For 2023, we expect our operating cash breakeven for our own fleet to be about $18,600 per day. This is $500 per day lower than our Q2 report, driven by early repayment for debt.

Coming to Slide 16, it provides a summary of our liquidity and financing structure. On a consolidated basis, we ended the quarter with close to $0.5 billion in liquidity. Including USD 190 million of available cash after netting of $110 million held in broker margin accounts and $196 million in undrawn revolving credit facilities.

As of the end of September, ship financing debt outstanding was reduced to $326 million, this follows a USD 110 million repayment of a revolving facility after conversion from term loan. These initiatives align with our strategy to reduce that cost and maintain funding flexibility.

On the trade financing side, USD 172 million or 26% of our current USD 660 million line have been utilized with USD 86 million related to advances drawn and another USD 86 million in letter of credit issuance, leaving a healthy headroom for growth. We remain on track to expand our lending group further and up our trade financing line to USD 800 million.

For perspective, these limits will allow us to trade up to 8 million tonnes of physical LPG per annum from the U.S. to the Far East under current market conditions. On this note, let me open the floor for questions. Back to you, Lisa.

Thank you, Samantha. We will begin our Q&A session now.

So with no further questions. I think we can round off the session and thank everyone for dialing in and listening to us this time. Thank you.

We have come to the end of today's presentation. Thank you for attending BW LPG's Third Quarter Financial Results Presentation. More information on BW LPG and BW Product Services are available at www.bwlpg.com and www.bwproductservices.com, respectively. Have a good day and a good night.