BW LPG Ltd (BWLP) 2025 Q4 法說會逐字稿

Hello, everyone. A warm welcome to BW LPG's Q4 2025 earnings presentation. My name is Aline Anliker, and I'm the Head of Corporate Communications at BW LPG. Today's presentation will be given by our CEO, Kristian Sorensen; and our CFO, Samantha Xu. After the presentation, we will have a Q&A session.

(Operator Instructions)

Before we begin, I would like to highlight the legal disclaimers displayed on the current slide. Please also note that today's call is being recorded. Without further ado, I would now like to hand over to our CEO, Kristian.

Thank you, Aline, and Hi, everyone. Thanks for calling in as we review our fourth quarter financial results and the recent developments, including the Middle East situation, which dramatically escalated last weekend. Let's turn to slide 4, please. So highlights. The beginning of Q4 was marked by lower tension in the US-China relationship as the reciprocal port tariffs were lifted and postponed until November this year.

In addition, there was a significant build in US propane inventories, well above trend levels, driven by strong US production. Over the winter, there were no major disruptions from the usual cold season weather, supporting a wide arbitrage throughout the fourth quarter and into 2026.

Moving on to the Q4 results. We reported a TCE income of $50,300 per available day and $48,100 per calendar day, above our guidance of $47,000 per day for the quarter. The Q4 profit after minority interest was $104 million, equivalent to an EPS of $0.69.

Our trading branch, BW Product Services reported a gross profit of $27 million and a profit after tax of $23 million for the quarter. And we are pleased to report a strong realization of $12 million from our trading activities in Q4, bringing the full year 2025 realized trading results to $66 million.

For Q1 '26, we're guiding on about $54,000 per day fixed for 94% of our available days. Solid levels above our all-in cash breakeven of $23,400 per day but it is reflecting the time charter coverage in the first quarter of 42% of our available days at $44,200 per day. Please see the appendix in this presentation for the full breakdown of the time charter days and levels. The Board of Directors has declared a dividend of $0.57 per share, representing 100% of our shipping NPAT, exceeding the guidance set by the dividend policy.

Looking further on our shipping activities, we are continuing our active dry-docking program in 2026 with 13 vessels scheduled for dry docking. The majority of these are planned during Q1 with a total of 193 off-hire days expected during the first quarter due to dry docking.

Given the dramatic escalation in the Middle East over the last couple of days, our first priority is to ensure the safety of our colleagues and crew in the region at the same time as we protect and optimize the overall interest of the company.

We have three ships from our Indian flagged fleet in the Arabian Gulf, two on time charter to Indian charters, and one vessel in dry dock. So far, there have been minimal negative financial impact only pertaining to the vessel in dry dock where the nighttime work is suspended. The two vessels on time charter are on hire in accordance with the respective time charter parties.

In addition, we have other vessels on time charter idling out Saudi Arabian Gulf, assessing the evolving safety and security situation in the Strait of Hormuz. Our next open spot vessel for AG loading could be available last decade of March unless we decide to ballast them to the US Gulf, of course, depending on how the security situation and market develops.

Like we have experienced in previous rounds of increased tension in the Middle East, the market response is to secure cargoes and ships from alternative loading regions and mainly from the US Gulf. We fixed one vessel yesterday at around $80,000 per day for mid-March loading, while other fixtures in the market are reported around the same level for first half April loading in Houston.

Further, in other subsequent events from the quarter, we recently announced that in January, we secured three-year time charter out contracts for two VLGCs, the BW Tucana and the BW Yushi, increasing our full year 2026 fixed rate time charter out coverage to 36% at an average of $43,700 per day. Let's move to the next slide, please.

So although the main attention right now is on the impact from the Middle East war, we believe it's worthwhile to remind ourselves of the market fundamentals as the fourth quarter of '25 and the start of '26 positively surprised the VLGC market.

By the end of 2025, the US propane inventories were well above the trend level at 100 million barrels, which is compared to 85 million barrels at the end of 2024. This was driven by strong production levels and supported the US export volumes, while domestic consumption remained steady at around 50 million tonnes per year.

As we entered the inventory draw season, US propane inventories declined somewhat, but remained well above the levels typically expected at this time of the year. The high inventory levels have contributed to continued downward pressure on US LPG prices and have, together with healthy demand in the Far East, supported a wide arbitrage as reflected in the US Far East price differential.

If you look at the graph on the right-hand side, we can see the relationship between the arbitrage and the VLGC spot rates. A wider arbitrage usually allows for a higher willingness to pay for shipping, something that has been the case in recent months.

In addition to commercial drivers such as the US Far East arbitrage, other geopolitical events and infrastructure expansions have also contributed to a strong market in recent months. Late October, for instance, the US and China agreed to trade truce, paving the way for a revived US-China LPG trade. And further into January this year, we've also seen the Nederland terminal in the US Gulf increasing its number of VLGC loadings after commissioning the terminal expansion in 2025.

And lastly, before the Arm conflict commenced on Saturday in the Middle East, the increased tension in the region led to market participants fixing vessels further out in time than what they normally would have. This was creating a shortage of available vessels and ultimately pushing up spot rates.

In addition to the factors we discussed on this page pertaining the exports of LPG, it's also important to look at how the developments in the Asian import markets are shaping the LPG trade dynamics under normal market circumstances. Next slide, please.

On this slide, we can see how trade flows responded to several major disruptions during 2025, with trade tensions between the US and China being among the most significant during the year. Chinese imports on VLGCs from North America and the Middle East fell by 3% in 2025 compared to the year before.

This number is, however, heavily impacted by a few months during 2025, where the trade tensions were at the highest and imports from the US were much lower than normal. Towards the end of last year, China had also lower imports than usual. This, however, coincided with Chinese LPG inventories declining. And for the beginning of '26, Chinese LPG imports are again on the rise and the ongoing Middle East conflict is likely to support more cargoes from the US ending up in China as the Middle East supply is disrupted.

As we have highlighted before, incremental LPG production is priced to clear in the international markets. And with the US-China trade war as a backdrop, this produced some interesting trade flows in 2025. For instance, as LPG volumes into the Far East declined 2% year over year, India saw its imports growing by 10% during the same period, driven by higher cargo flows from the US, increasing the ton mile compared to the traditional sourcing of LPG from the Middle East.

India is a market of growing importance for LPG with about 10% equaling 2 million tonnes of Indian LPG imports contracted from the US for 2026. We also see Indian government subsidies continue supporting retail demand and new pipeline infrastructure is expected to further improve inland distribution.

Another region that saw an increase in import volumes from North America in 2025 was Southeast Asia. This region has historically imported most of its LPG from the Middle East; however, with the trade war shifting from -- shifting more of the Middle East volumes to the Far East, increased volumes from North America found its way to Southeast Asia last year.

As long as the Middle East tension is halting LPG exports from the region, we anticipate more US volumes flowing to the market east of Suez, which is supportive for freight in the short term. Over the longer term, however, vessels that have traditionally loaded in the Middle East are likely to see cargoes from the US, which could place downward pressure on the rate structure for US loading VLGCs. Next slide, please.

If you're looking at the two main regions for LPG exports, North America and the Middle East, we will continue seeing export growth in the years ahead, assuming the Middle East situation returns to normal. In the Middle East, the exports from Saudi Arabia and Qatar are disrupted with duration of these disruptions remaining uncertain at this point in time.

Secondly, the raging Middle East war has halted all ships passing in and out of the Arabian Gulf, which would have a dramatic impact on the Middle East exports short term. It remains to be seen how long the large energy markets in Asia can accept their supply of hydrocarbons being choked. The US exporters probably have some slack and room for optimization as we move into April, but we have limited visibility at the moment. Anyhow, it's obviously not enough to replace the shortfall of volumes from the Middle East in the medium term.

If we look through the current fluid and dramatic situation, Saudi Aramco has now started oil production from the Jafurah field with gas output expected towards the end of this year. Furthermore, the first phase of Qatar's North Field expansions is expected to come online in Q4. In the US, the Permian crude oil production continues to yield more NGLs per barrel of oil produced. In addition to this, more LPG export infrastructure is coming online, enabling continued growth in exports.

In sum, we expect the larger North American region to grow its exports in the mid-single digits over the coming years, while Middle East LPG exports are expected to grow in the high single digits. Next slide, please.

And let's take a look at the Panama Canal, which continues to play an important role for the VLGC market. Throughout 2025, the Canal Neo-Panamax locks frequently saw utilization close to its max capacity, often driven by increased transits from container vessels. This fuels volatility in transit fees and waiting time, which in turn continues to divert VLGCs around South Africa in order to timely reach their destinations. The Middle East situation may increase the traffic in the Panama Canal in the short term as market participants rush to secure cargo and shipping capacity from the US.

While in the coming years, we expect usage of the Panama Canal to remain high. An important driver for this is growth in several shipping segments that, to a large extent, are being built for increased exports out of the US. This includes VLGCs, of course, but also very large ethane carriers and LNG vessels. Now it's important to highlight that not all VLGCs and LNG carriers will service the US exports exclusively.

So we'll also be shipping volumes out of the Middle East and other places and some volumes out of the US will not be sailing through Panama. But regardless, considering the limited capacity of the canal to handle additional transits, we will likely continue to see VLGCs sailing around South Africa in the foreseeable future.

Let's take a look at the current fleet and the order book. And we can see that the fleet has grown in the last three months and now stands at 421 VLGCs on the water. The order book is currently at 105 VLGCs under construction with delivery stretching all the way to the end of 2028.

We've seen some new orders for newbuildings this year, but the contracting remains modest compared to the levels seen in the recent years. And while we expect more newbuildings to be delivered going forward, it's also worthwhile to keep in mind that 10% of the fleet is older than 25 years of age.

So to sum up, the underlying fundamentals of the VLGC market are robust in the medium term, but the serious situation in the Middle East is increasing the volatility and uncertainty.

The US Gulf spot rates are so far benefiting from increased demand for cargoes and ships, while the long-term conflict will probably increase the number of VLGCs seeking employment in the US Gulf and putting pressure on the rate sentiment. The US does not have enough production and export capacity to meet the shortfall of the Middle Eastern exports, and we'll probably see a rather serious situation unfolding in the consuming markets in Asia unless the exports of hydrocarbons from the Middle East resume rather soon.

Assuming the Middle East situation normalizes, the medium-term outlook is underpinned by expanding export infrastructure in the US and increasingly higher NGL content in the Permian oil production. At the same time, new gas projects are expected to support LPG exports out of the Middle East in the coming years.

As mentioned, the VLGC fleet is now at 421 ships. The order book is relatively large and the inefficiencies in the VLGC market will define how the order book will be absorbed. Firstly, the Neo-Panamax locks in the Panama Canal are operated at or near full capacity and growth in several shipping segments linked to increased US exports will likely continue to divert VLGCs around South Africa.

Secondly, the trade pattern will play a vital role in how much shipping capacity is needed. And we have seen new long-haul cargo flows from the US into markets east of Suez. And thirdly, if you envisage a normalization in the Middle East involving 11 million tonnes of Iranian LPG exports to be shipped on compliant vessels rather than the shadow fleet, which currently counts about 50 VLGCs, you will have a rather bullish outlook, pretty similar to how it would play out in the VLGC tankers market.

Finally, looking at the paper market at the moment. It's pricing itself around $85,000 per day for the Ras Tanura-Chiba benchmark leg, although the liquidity remains limited.

And that concludes our market segments. Over to you, Samantha.

Thank you, Kristian, and hello, everyone, and thank you for being here with us today. Start with our shipping performance. The fourth quarter of '25 has been a quarter that we delivered above the guidance with a TCE of $48,100 per calendar day or USD50,300 per available day. The fleet utilization was 94% after deducting technical off-hire and waiting time.

Delivering this healthy result in market for of uncertainties is a strong testament to our commercial strategy, which built on healthy time charters and FFAs concluded during active and strong markets. Such protection provides stability and support when spot markets come under pressure as we have witnessed in this quarter.

In Q4, the time charter portfolio was 44%, out of which 33% was fixed rate time charters. Looking ahead for Q1 2026, we have fixed 94% of the available fleet days at an average rate of about USD54,000 per day. This also includes index-linked time charter contracts, which could share some spot market upside when the market becomes stronger.

For full year '26, we have secured 40% of our portfolio with fixed rate time charters and FFA hedges at USD43,700, $47,900 per day. Altogether, our time charter out portfolio is expected to generate around USD197 million. Although the level of rates appear to be slightly lower than 2025, it continues to represent a very healthy level of earnings against an all-in cash breakeven of low 20,000. Next slide, please.

In Q4, the Product Services posted a realized gain of USD12 million, reflecting effective risk management in a turbulent market conditions that we experienced.

At the quarter end, we reported a USD33 million increase in mark-to-market on our cargo position, offset by an USD18 million decrease in paper positions. After accounting for G&A costs and other expenses, Product Services reported a net profit after tax of USD23 million for the quarter with net asset value at USD53 million at the end of December, creating good dividend capacity.

As we highlighted in previous quarters, these mark-to-market movements, which regularly gives volatility to P&L are largely driven by the gradual phasing in of our multiyear term contract as reflected in a volatile market. While the periodic value adjustments are significant, they reflect the delta between the balance sheet dates, and we'll see fluctuations before the positions are realized. We will continue to report our future trading performance, including mark-to-market via our quarter end trading result updates. We are pleased to see that the analyst consensus has, in general, included our trading performance.

It is also important to note that trading gains and losses are realized across different financial periods. They cannot be extrapolated from past performance as unrealized positions will vary depending on the period end valuations. The realized trading profit, though will add to the company's dividend potential and be considered for dividend distribution post year-end, along other factors such as net profit after tax, cash flow, and other commercial considerations.

Our trading model is designed to create value by combining cargo, paper and shipping positions. With that in mind, we would like to remind you that the reported net asset value does not include unrealized physical shipping position of USD26 million based on our internal valuation.

In Q4, our average VAR, value at risk was USD3 million, reflecting a well-balanced trading book, including cargo, shipping and derivatives, even after accounting for the increased term contract volume that is scheduled to start from the end 2026. Going on to our financial highlights.

We reported a net profit after tax of USD123 million, including a profit of $31 million from BW LPG India and a $23 million profit from Product Services. Profit attributable to equity holders of the company was USD104 million for the quarter, which translates to earnings per share of $0.69 and an annualized earning yield of 21% when compared against our share price at the end of December.

We reported a net leverage ratio of 28.4% in Q4, down from 32.7% at the end of '24. The reduction was mainly due to lower lease liabilities following the exercise of a purchase option of BW Kizoku and BW Yushi and principal repayment made in the duration of full year 2025.

For Q4, the Board declared a dividend of $0.57 per share, representing a 100% payout of our shipping profit for the quarter, beyond the 75% payout ratio of shipping profit guided by our dividend policy. The healthy liquidity and positive outlook of the market supported our wish to pay back to our shareholders.

For the period end, our balance sheet reported shareholders' equity of USD1.9 billion. The annualized return on equity and that on capital employed for Q4 were 26% and 19%, respectively. Our 2025 OpEx concluded at $8,800 per day, a marginal reduction than reported in last year.

For '26, we expect our own fleet operating cash breakeven to be about $18,500 and $20,200 for the whole fleet, including time charter vessels. The all-in cash breakeven is estimated to be $23,400, driven primarily by lower lease repayments and decrease in financing costs. Next slide, please.

Finally, let's look at our financing structure and repayment profile. As of end Q4, we maintained a healthy liquidity position of USD613 million consists of $226 million in cash and $387 million of undrawn credit facilities. This is after voluntary cancellation of two ship financing facilities, including USD36 million repayment and $260 million undrawn revolving facilities. This cancellation reduced our funding cost and level of cash breakeven, further strengthened our financing discipline.

Looking ahead, our liquidity stays strong. Repayment profile remains sustainable with major repayment starts from 2030. On Product Services, trade finance utilization stood at USD182 million or 23% of available credit line, leaving ample headroom for future trading needs.

And with that, I'd like to conclude my update. Thank you for listening and give it back to you, Aline.

Thank you, Samantha. Thank you, Kristian. We would now (audio in progress).

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