BW LPG Ltd (BWLP) 2023 Q4 法說會逐字稿

Welcome to BW LPG's Fourth Quarter 2023 Financial Results Presentation.

Bringing you through the presentation today are CEO, Kristian Sørensen and CFO, Samantha Xu.

We are pleased to answer questions at the end of the presentation.

Should you have any, please type them into the Q&A function in your Zoom panel.

You may also use the raise hand option.

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, Lisa.

And hi, everyone.

Welcome to our 2023, Q4 presentation.

I'm joined today by our CFO, Samantha and together, we will take you through the slides.

Q4 ended the strongest year on record for BW LPG.

We achieved a time charter equivalent income per available day of $76,000 in a steaming hot VLGC market.

And together with a strong performance from our Product Services team, we had a net profit after tax of $162 million for the quarter and a full-year NPAT of $493 million, our highest ever.

After the first full calendar year in operation as the new and expanded trading team Product Services generated a net accounting profit of $18 million in Q4.

This is after adjusting for G&A and tax provisions from the earlier announced $27 million quarterly profits.

We've also scheduled to return $30 million to the shareholders in Q2 this year following a substantial cash generation during 2023.

Given the strong quarter for our company, our board has declared a dividend of $0.90 per share, which brings our year-to-date dividend per share to $3.46, representing 98 payout of our annual earnings and an annualized dividend yield of 28%.

The quarter was eventful also other fronts.

We're moving forward with our dual listing in New York, which will likely take place in second quarter this year on the New York Stock Exchange.

We had road shows in the US where we received strong interest in our companies and the sector's story and we're confident that the listing in New York will expand our investor universe in the future and increase the liquidity in our shares.

Our company also made a milestone announcement on November 30, with the announcement of a signed joint venture with our Indian partners Conference Petroleum and Ganesh Benzoplast to invest in the development of a new LPG import terminal in India.

In addition, and as part of the agreement, we have just concluded a $30 million investment in Confidence Petroleum, which gives us a strategic 8.5% ownership in the company to participate and get a foothold in the distribution of LPG in India.

As we moved into 2024, the VLGC market has again proven itself as exceptionally volatile, with rates dropping more than 90% in three weeks due to cold weather in the US, which increased US LPG prices and halted the US exports.

At the same time, the sudden availability of more Panama Canal transit slots reduced the sailing distance and put pressure on rates.

However, since January, rates have increased sharply and we're currently seeing rates in the $40,000 per day range in the Middle East as well as the US Gulf, and with the a contango in the FFA market for 2024.

And on the back of this we maintain our positive view for the year backed by sound fundamentals, those are the highlights.

Next slide, please.

The massive volatility is something we have experienced previously.

And if we move to Slide 6, we have compared this year's drop and recovery in rates with year 2022 and 2023.

And the story has repeated itself, starting with a cold front in the US, which closes the LPG price arbitrage between the US and the Far East and the willingness to pay for shipping.

On top of this, we had a surprising turnaround in the availability of Panama Canal transits as mentioned, which reduced the sailing distance and increased the supply of ships.

However, like previous years when the temperatures in the US Gulf Coast normalizes, the prices recalibrate and the exports are restarted, which, again, push shipping rates up.

We are also now seeing a busier transit program in the Panama Canal, driven by more container ships, which takes up capacity and is expected to reintroduce more inefficiency to the VLGC fleet.

Turning to Slide 7, the US exports for February are record high and driving the recovery of the rates together with fleet inefficiencies, absorbing capacity.

And looking at the FFA market, illustrated by the red line on the left-hand side of the slide, it is pricing second half 2024 in the $50,000 to $60,000 per day range.

The newbuilding deliveries have been a focus point over the last years and the pace in new vessels hitting the water is coming off sharply after the first quarter this year.

And remains limited for the next 24 months.

We do however monitor the large number of VLAC newbuilding orders this quarter for 2027 delivery, which may bring uncertainty to the development of the VLGC market in the longer term if the ammonia export projects do not materialize or are delayed.

Turning to Slide 9, we have reduced our forecast for North American exports for the year following the cold snap in January.

In Middle East, we anticipate Middle Eastern exports to be stable this year before they start growing on the back of the massive LNG expansion in the region from '25, '26, '27 onwards.

And to sum up, we maintain our positive view for 2024 based on solid underlying fundamentals and added by returning inefficiencies in the fleet, especially around the Panama Canal and abating newbuilding deliveries.

Turning to Slide 12, please, so moving on to the financial performance for our core shipping segment.

We achieved a historical high TCE performance of $76,000 per available day for the fourth quarter.

This figure includes fixed time charters and derivative hedges.

The spot fleet achieved a TCE of $108,300 per day, excluding the waiting days.

For the first quarter this year, around 83% of our available days are fixed at an average of $55,000 per day.

As highlighted earlier, we saw a sharp decline in spot rates down to less than $10,000 per day in January, which impacts the guidance rate together with a number of previously fixed ships ending up sailing trans-Atlantic voyage from the US after long ballast from the Far East.

We anticipate that we will recoup this ballast cost goes for the voyages in the next quarter.

Looking at our coverage for 2024, 23% of our fleet is already fixed on a time charter with an average daily rate of $41,500.

We balanced our TC in and TC out commitments for '24 and have already secured a $23 million profits.

And additionally, 14% of our days are hedged with derivatives at an average of $56,500 per day.

And with this, I'm pleased to let Samantha take you through Product Services update and our financials.

Over to Samantha.

Thank you, Kristian.

And good morning, good afternoon to everyone.

Let me continue to add some colors to the Product Services performance.

The net asset value of the Product Services increased by USD18 million to USD62 million at the end of December.

The increase comes from positive gross profit after netting off other expenses.

In Q4, Product Services generated a gross profit of USD32 million, which includes USD50 million of unrealized cargo and derivatives gains, offset by USD17 million realized loss during the quarter.

The loss includes the depreciation from Product Services lease-in vessels.

Other expenses of USD14 million, largely comprise of G&A expenses, including bonus provision and income tax provisions.

The reported net profit does not include the unrealized mark-to-market valuation of physical shipping position, which was excluded from the accounting result.

Our internal valuation of these TC-in contracts at the end of December was USD84 million.

This positive value reflects the continuous strong development in the 12 months forward freight market for VLGCs, which is the period we use to evaluate freight position in Product Services.

Due to an increased volatility in the LPG product and freight market back in Q4, we reported a higher average VAR of USD8 million on a well-balanced trading book, including cargoes, shipping, and derivatives.

We continue to see good collaboration and synergy between Products Services and our shipping business through improved information flow optionalities and enlarge footprint.

Focusing on the profit, Products Services is also progressing in expanding the physical presence in key markets as we aim to broaden the platform and trading portfolio.

Please go to next slide, please.

So moving to the financial highlights, in Q4, we reported a net profit after tax of USD162 million on a consolidated basis.

This includes USD16 million in profit from BW LPG India and USD18 million in profit from Product Services.

The net profit also includes a downward adjustment of USD4 million related to the effect of IFRS 15 for the quarter.

As the TCE for the straddling voyage over the quarter end is recognized on a low to discharge basis.

We reported an earnings per share of $1.14 this quarter, mainly contributed by our core shipping segment.

This translates into an annualized earning yield of 31% when compared against our year-end share price.

We reported a net leverage ratio of 21% in Q4.

The board declared a Q4 dividend of $0.9 per share.

We have in total declared $3.46 per share, including Q1 to Q3, or a 98% payout ratio in year 2023.

The dividend payout reflects our commitment to return value to our shareholder's as we continue to deliver a high dividend yield of 28% when calculated on our share price at yesterday's closing.

Our balance sheet ended the quarter with a shareholders' equity of USD1.6 billion.

We continue to see a healthy headroom for more than $400 million comparing broker valuation of with our fleet to book values.

Our annualized Q4 return on equity and capital employed were 42% and 33% respectively.

In Q4, our daily OpEx came in at $8,200 per day due to slightly higher than expected maintenance and repair expenses.

For 2024, we expect our own fleet operating cash breakeven to be about $17,600 per day, and this is a $1,000 per day lower than previous quarter, driven by early debt repayment.

On Slide 5, it provides a summary of our liquidity and financing structure.

Excuse me-- on a consolidated basis, we ended the year with close to $0.5 billion in liquidity consists of $162 million in cash, net of $126 million held in broker margin accounts and $295 million in undrawn revolving credit facilities.

As of end December, ship financing debt outstanding was $311 million, of which $257 million was term loans and revolving credit facility of USD54 million.

Looking at trade finance, $319 million or 48% of our $660 million line has been used as of end Q4, with $85 million related to trade advances drawdown and $234 million in letters of credit leaving a healthy headroom for further growth.

As of January 2024, we upsized our trade finance line to $746 million with two additional lenders increasing our headroom further to support future growth.

In terms of overall repayment profile, excluding short term trade advances settlements are well spread out with no major repayment until 2026.

So with that, I would like to conclude our Q4 update, giving back to you, Lisa.

Thank you, Samantha.

We will open the floor for questions now.

(Event Instructions)

So we have one written question here from [Johanna Nero] asking if you could elaborate on how increased ammonia new buildings may bring uncertainties days to the VLGC market.

Yes, thank you for the question.

Ammonia has for several decades already been carried onboard LPG vessels.

And today it's the midsize LPG vessels which are the workhorses of the ammonia markets.

And these new VLAC newbuilding's are essentially VLGCs, which are specced up and also have strengthened the tank structure to carry up to 98% ammonia.

But they can also shift the trade into LPG if the ammonia trade is not as lucrative as or attractive as they expect.

So these ships can in theory also trade LPG.

We have a question.

Jørgen Lian please go ahead.

Yes.

Hello.

Kristian, Samantha.

This is Jörgen from DNB Markets.

And I just want to ask if there can be -- can we have a discussion on some more flavor on the considerations around the payout ratio this quarter on the dividend versus the EPS number you reported?

Yes, sure Jörgen.

First of all, we do of course, not like to disappoint the market, but the fact is that we have a dividend policy which aims for an annual payout ratio of 75% of our shipping segment's NPAT -- if the net leverage is between 20% and 30%, and 100% if it's below 20% net leverage.

And we have a net leverage of 21% and consequently the board decided to pay out 98% of the NPAT for the year, which generates a dividend yield of 28%.

So it's in accordance with our dividend policy where we have an aim for an annual payout ratio.

Okay, thank you.

And secondly, if I may, this the IFRS effects that you see with the very volatile markets.

Do you have any flavor on how that looks to be shaping up into sort of next quarter considering the guidance and what you have seen so far?

Yeah, sure.

Jörgen.

From IFRS 15 NPAT perspective, first of all, let's put it that way.

It's a very difficult to anticipate what kind of effect it bring to the quarter and to the quarter has ended.

Because this very much depends on the vessel deployment, the loading and discharge locations as well.

And given that we have had, I would say both negative adjustment in the previous quarter and Q4.

We see that the negative impact should be less, so if not a reversal in this quarter.

But as you can appreciate, I'm sure that the from your side of our wireless law, it's a really hard to model the model this constant impact out.

Okay, thank you.

And we'll move to the next question here from

[Axel steerma].

Kristian, you mentioned a risk that VLEC newbuilds potentially may trade in LPG, but you then refer to the ammonia trade.

I assume you meant the VLAC newbuilds.

Yeah, you're right.

Actually, it's my English, which is a bit broken.

So it's VLAC's ammonia carriers, not the ethane carriers.

We have a question here from Desmond, BMO.

When do you expect environmental regulations concerning the slower shift speeds to materialize?

Well, the world fleet of VLGCs has already have already kind of reduced speed somehow on some of the vessels.

So you can see, for instance, our fleet trading in and out of India is down to 14 knots these days.

So we already now see the impact of the slower speeds.

So I would say that this is already ongoing.

(Event Instructions) Once again we have a question from the channel.

Yeah, a question from

[vasilis Theodorou].

What is your estimate of negative ton-mile demand impact for a full year 2024 due to increased Panama Canal transits?

So negative ton-mile demand.

You can say that -- if you turn it the other way around if the ships are sailing from the US via South Africa towards the Far East, it's 50% -- approximately 50% longer voyage -- a round voyage.

So I think that is kind of the rule of thumb that you can have.

So it's depending on where you discharge in Asia, of course.

But if you go all the way to Japan via South Africa back and forth, it's about 50% longer distance and then more down to 45% if you go to the more Western parts of Asia.

And we have a question here from

[Nick Linnane].

You had some tax expense in the fourth quarter of 2023.

Can you explain what drove this?

Sorry, another question went away.

Hey, Nick, this is Samantha.

I think you' re referring to the tax we have disclosed for product services that does stand out in Q4.

Maybe just a little bit the way we accrue taxes on a quarterly basis and at the year-end we would true that the tax provision for the year.

So that is a basically the full year impact of the tax reflected in Q4 as we -- you can see that -- we generated a positive profit for product services.

So from a tax percentage -- tax rate perspective, we have a different tax rate in where the business was conducted, respectively, in Singapore and Spain.

So it's under a different tax scheme as well.

So the effective tax rate, it's very difficult to calculate until the year end.

So I will be happy to get back to you if you're interested after I have done some fact-finding for 2023.

Then we have the question a from

[Asbjørn Vattnemot].

What is your view on demand from China?

What is the latest on PDH utilization?

Well, our view on the demand from China is that, of course, we recognize that the Chinese economy is on a slower pace than what we are, let's say, have been used to over the last years.

The imports especially last year was very, very high despite of this, because we know that they have a political goal to capture more of the petrochemical market.

And we can see that the PDH demand is increasing, but it's not like -- it's not like a linear increase going straight up.

So for the moment, you asked also about the PTH rates, utilization rate I believe, which I don't have the latest, but it's been down to 60%, 70% we have seen.

So there is definitely upside potential, but I don't have the latest number in front of me just now.

So I need to get back to you on that.

But all in all, very positive for the increase of LPG imports to China, despite the economic challenges that they have.

(Event Instructions) One more question from [Nick Linnane] here.

How many VLAC orders do you see in the order book?

Well, the vessels on order with ammonia lifting capacity is 73 as far as I can see from my list here.

So, these are both VLGCs with ammonia lifting capacity.

And then there these are VLACs, which have a strengthened tank structure and load more ammonia, and in combination, it's 73 in total, in our list.

(Event Instructions)

We have one question from the

[Desmond Bhomil].

Do you plan on repurchasing anymore shares?

Samantha will you reply on that?

Sure, as you know that we had a share repurchase program announced in May 2023, and we have already repurchased back USD13 million worth of share and the remaining USD37 million to go.

And prior to that, we also had USD15 million a repurchase program in 2022, which would have finalized.

And we will continue to evaluate and then get back to the investors.

We have another question here from [Nick Linnane], what do you think is current US LPG export capacity?

Well, we can see that in the US Gulf, they have increased the export capacity by removing the restrictions on nighttime berthing on Targa and Enterprise terminals.

So they have increased that up to -- we count close to 100 liftings in the Gulf Coast region per month on a regular month only.

And then in addition, you have the US East Coast where there is another 10%, not 10% but 5% of the US export volumes are currently exported from the US East Coast.

And then you have on the West Coast of Canada and on the US, it's another 2 million to 2.5 million tons on an annual basis as export capacity.

So what we have seen also is that about according to furnace the ship broker, it's about 6.5 million tons which are exported on mid-size vessels, which in theory can be which occupying the berths.

So if you exchange them with VLGCs, in theory, you can probably increase the VLGC lifting capacity out of the States even more.

So, but we do see that the American terminals are very efficient if they need to export more than what we anticipate.

For instance, what we have seen now in February is higher than what we had expected and so about 100 berthings per calendar month in the US Gulf Coast alone is what we see approximately.

(Event Instructions)

Okay, that rounds off our quarterly earnings presentation.

So thank you, everyone, and see you next quarter.

We have come to end of today's presentation.

Thank you for attending BW LPG's fourth quarter financial results presentation.

More information on BW LPG and BW Product Services available at www.bwlpg.com and www.bwproductservices.com, respectively.

Have a good day and a good night.