StealthGas Inc (GASS) 2015 Q1 法說會逐字稿

Good day and welcome to the Q1 2015 conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Harry Vafias. Please go ahead, sir.

Good morning, ladies and gentlemen, and welcome to our first-quarter 2015 earnings presentation and webcast. This is Harry Vafias, CEO of StealthGas. Joining me on the call today is our Chairman, Michael Jolliffe, and Finance Executive, Mrs. Fenia Sakellaris, who will be presenting the Company's financial performance at a later stage of our call.

Before we briefly present our today's agenda, I would like for all of you to be reminded that we will be discussing forward-looking statements which reflect current views with respect to future events and financial performance. At this stage please take a moment to read our disclaimer on slide 2. It is noted that risks are further disclosed in StealthGas's filing with the Securities and Exchange Commission.

Let's proceed in summarizing today's topics. I will begin with an overview of our Company's highlights for the first quarter of this year, then we will discuss our financial performance and provide an overview of the LPG market. And finally after a close look at our stock performance, I will share our views on our Company's outlook. I would like to note that all amounts, unless otherwise clarified, are implicitly stated in US dollars.

Let's move to slide 3 to summarize our Company key highlights for the period. With regards to our fleet and operations, by the end of April and as per our CapEx plan, we took delivery of three new eco LPG ships, two of which are already fixed on bare charters, while one currently in the spot market will enter into a six-month charter in July.

In addition, we concluded in April the sale of two of our oldest vessels for demolition, thus [easing] our OpEx base, decreasing our fleet's average age, and setting a market example as we feel that the acceleration of scrapping might improve the current soft freight market. As far as our Company's strategy is concerned, we continue to base our success on our low running costs and, most importantly, our conservative charting strategy, having secured -- in spite of tough market conditions -- about two-thirds of our fleet employed on contracts for this year.

With regards to financial highlights, in Q1 2015 we recorded highest revenue to date of $35.7 million, for which we are particularly proud as we acknowledge the soft market conditions. Gearing remained low at 34%, while our unrestricted cash balance stood strong at about $128 million.

In November 2014, we reenacted a share buyback program of $10 million, which was extended by another $20 million on February 15. Since the initiation of the program to date our Company has repurchased about 2 million shares for a total of about $12 million at an average price of $6.20 per share.

Looking at our Company's position against peers in slide 4, StealthGas remains the leader in the small LPG carrier segment. Our Company has the highest number of owned vessels and still has in line the biggest order book compared to industry peers. In terms of our average fleet age, it was reduced in Q1 2015 to 10.3 years from 10.9 years in Q4 2014 and will be lowered further as our remaining newbuildings get delivered over the next 24 months.

Slide 5. This slide presents our fleet employment. In terms of charter types, out of a fleet of 46 ships and as at the end of April 15, we had 15 of these on bareboat charters, 20 on time charters, and 11 in the spot market. The two vessels that are chartered-in by our company, the Gas Cathar and Gas Premiership, are also on time charters.

Based on pre-agreed contracts, committed revenues amount to $238 million up until 2022, marking an $18 million increase compared to the beginning of the year. This increase is partly attributed to the successful chartering of the Spike, our only Aframax tanker, for a period of five years; the extension of the Gas Cerberus charter for another two years until July 2017; and the short-term -- average four months -- charter extension of another four LPG ships: the Gas Monarch, Gas Alice, Eco Lucidity, and Eco Enigma.

We would like to point out that due to soft market conditions, this period we strived to follow a short- to medium-term charter strategy for our LPG fleet. In addition, I would like to stress that another sign of our efficient chartering strategy is the fact that nearly 70% of our ships that are above 15 years of age are currently on period charters.

With regards to our fleet geography presented on slide 6, 48% of our fleet trades in the Middle and Far East, 24% in Europe, and 18% in South America, followed by the rest, 10%, in Australia. As shown in the chart to the bottom left, which breaks down our South American trading, we have increased significantly our trading in Brazil in the past 12 months, which although operation is more difficult and expensive it still remains one of the most profitable trading areas. In spite of this, due to the increased demand the Middle East to Far East remains our major trading region, with the majority of our fleet trading around China and Japan.

Slide 7 demonstrates our fleet breakdown and development plans. As of April 30, 2015, our Company owned a total of 46 vessels. We took three new eco LPG deliveries since the beginning of the year, one in January and two in April; and in addition, as announced in the previous quarter, we sold two of our oldest vessels for demolition.

Based on our expansion plan, our Company aims to reach 59 vessels fully owned, and 61 vessels controlled by the Company by the end of 2017. We feel that our expansion program based on quality vessels from only the top-tier yards will significantly benefit our Company in the long run. However, due to the weak market and declining rates, we feel that strategically and to the benefit of our investors it is better to use Company cash to acquire our own shares, as we are currently doing, than engage in the ordering or buying of additional ships.

Moving to slide 8, I will briefly comment on the remainder of our capital expenditure program. Excluding the $70.4 million advances paid to date, we have an ongoing CapEx plan of another $323 million until the end of 2017 for an additional delivery of 13 new ships.

As mentioned in the previous quarter, in 2017 we expect the delivery of the four 22,000 cubic meter new-generation semi-refrigerated vessels. Our strategic decision to enter this new market segment was not to replicate what we are currently doing as leaders of the small-scale LPG segment, but rather to put us in a position to offer more integrated services to our customers at a lower cost and with brand-new, high-quality assets. [Similar] vessels of this size are able to carry a bigger variety of gases on medium-haul routes.

As presented in the capital expenditure analysis to the right, $70 million of our remaining CapEx have already been paid as equity advances and over $130 million is committed bank debt, while a further $125 million is debt under negotiation. This leaves us with $67.7 million of equity funding. Taking into account that cash on our balance sheet starts at about $128 million, StealthGas is already in a comfortable position to equity finance its future CapEx requirements -- and more, if we need to.

I will now turn the call over to Mrs. Fenia Sakellaris for our financial performance discussion during the first quarter of 2015, and later will discuss the market and industry outlook.

Thank you, Harry, and good morning to everyone. Let us move on to slide 9, where we see the income statement for the first-quarter 2015 against the first quarter of the previous year. In spite of the weak market segment, with declining oil prices lowering LPG product prices and consequently freight rates, our Company managed to make record voyage revenues in Q1 2015, surpassing $35 million in spite of almost $2 million increase in voyage revenues compared to Q1 2014, higher voyage costs due to the increased number of operating vessels, and almost double the number of vessels in the spot market narrowed down our net revenues to $31.4 million. Running costs mark a 9.5% increase, because of the five newbuilding additions and one vessel coming off bareboat charter.

We would like to note that this quarter we incurred a reverse operating charge of $500,000 and therefore running costs would have been in reality higher by the aforementioned amount. With regards to drydocking costs, we faced no charges in this quarter. Overall, our schedule for 2015 has two vessels to be drydocked in the second and fourth quarter of the year.

Our EBITDA for this first quarter of the year came at $16.7 million, reduced by $1.6 million compared to first-quarter 2014 as a result of the aforementioned increase in voyage and running costs, but also as a result of the incurred charter hire charge of $1 million for the sale and leaseback of Gas Cathar and Gas Premiership that were fully owned by the Company in the same period of last year. Interest and finance costs marked an increase of $150,000, mostly due to higher commitment fees for new loan agreements on vessels delivered within the examined period.

With a net income of $5.8 million our earnings-per-share was $0.14 on 42 million outstanding shares, compared to $0.23 on 33 million outstanding shares in Q1 2014.

Slide 10 demonstrates our performance highlights for the period examined. Due to soft market conditions, our operational utilization was 95.6% in Q1 2015 compared to 98.3% in Q1 2014, and spot days doubled, as we had 11 vessels in the spot market compared to five vessels in Q1 2014. Focusing on the average daily results, adjusted time charter equivalent decreased by 10% to $8,700, reflecting the weakening freight market and demand.

In spite of nonfavorable market conditions, our results indicate our Company's fundamental value, as apart from the fact that we managed to achieve record revenues we also managed to decrease our daily OpEx by 9% compared to Q1 2014. Even in taking into account the $500,000 of reverse charges oppressed our OpEx base, this quarter our daily OpEx is still 6% lower than Q1 2014, while management fees and G&A costs marked a moderate increase.

Looking at our balance sheet on slide 11, our asset base at $946 million is a shade below $1 billion, and that number will grow by the end of this year with the completion of an additional seven new eco LPG vessels. Compared to end of year 2014, our asset base marked a slight increase in value, following the delivery of the Eco Lucidity in January 2015.

We would like to note that 14% of our total asset is comprised of cash and cash equivalents, which by the end of Q1 2015 amounted to $128 million. We find it very positive that despite soft market conditions our operating cash flow for the quarter was sufficient to fund capital expansion requirements of approximately $8 million and a share buyback program of $6 million, thus leaving our cash balance virtually intact, as our cash decrease for the quarter came at $1.6 million.

Focusing on the equity and liabilities side, our gearing remains low, on the order of 34%, and total Company leverage decreased by $2.5 million. We would like to mention that as in Q4 2014, in this quarter we voluntarily repaid a $30 million outstanding loan in March 2015 that was due in June of this year, utilizing wisely our excess cash in order to reduce our cost of debt even further.

Slide 12 proves our Company's financial strength. Although LPG charter rates are close to bottom of the rate cycle and, as presented in the top graph at the left, our daily TCE follows a declining trend, our tightly managed cost base allows us to have a low breakeven and we consistently profit make even at market lows.

In fact, in the first quarter of 2015 we managed to lower our breakeven to $6,070 a day. This reduction is partially attributed to the one-off expense claim of $0.5 million incurred this quarter; but most importantly, we believe it is a sign of economies of scale brought up on effective management strategy.

Looking at the graph below, which depicts the evolution of our G&A daily costs, it can be argued that we are consistently below $200 daily charges. In Q1 2015, if we exclude the non-cash stock-based compensation charges, our daily G&A costs fell to $175.

To summarize our key points, we are leading a successful conservative expansion plan while navigating and protecting the Company. I will now hand you over to our CEO, Mr. Harry Vafias, who will discuss market and Company outlook.

Thank you, Fenia. Let's proceed now to the market update on slide 13. The LPG market continues to grow. Global demand for LPG has increased by 14% over the last decade and global supply has grown by 22%.

LPG trade is supply-driven and relies on short-term regional differences. Looking at the left-side graph which presents world LPG shipping supply by region, it's evident that the LPG supply is undergoing significant expansion, with key growth regions being Middle East, Asia, and North America.

The rapid expansion of US LPG is associated with the US shale revolution. The US market is expected to play a major role in the development of the international LPG trade. This, however, will be determined by oil price fluctuation, as declining oil prices have led to a reduction in US LPG production.

Focusing on the demand side, in the right-hand side graph it's evident that Asia is already the biggest LPG-consuming region. Japan is still the largest importer of LPG, followed by the fast-growing India that enjoys the development of the rural LPG market in China, but is highly dependent on the startup and operation of PDH facilities.

Slide 14 shows the evolution of LPG charter rates. As evident by the table presented, the small LPG segment has experienced declining rates during the last five months. The most affected segment has been the 5,000 cubic meter pressurized ships, where rates have fallen by about 20%.

Taking into account that lowest rate recorded has been about $7,000 a day, it can easily be argued that the market is close to the historical lows. Low oil prices affect LPG demand and consequently trade; and therefore, should oil prices decline even further, we envisage to see a further deterioration of LPG rates in the near future.

In addition to this, LPG rates differ in the broader LPG sector. In the diagram that demonstrates the evolution of VLGC rates versus rates for 5,000 cubic meter pressurized ships during the last 10 years, it is interesting to see there has been no correlation between the two.

While VLGC rates have enjoyed a considerable increase during the last year, rates for small ships have been following an opposite path. VLGC vessels focus on international voyages, while small LPGs on short-haul transportation of gas.

Continuing to slide 15, we present a snapshot of the small LPG fleet status. In terms of fleet age profile, as presented in the graph on the left, almost a quarter of the small-scale LPG fleet is above 20 years of age and therefore the market should scrap more ships. I strongly believe that in this soft rate environment with a high number of newbuildings that we saw in 2014, along with minimal scrapping activity until now, it does not help to balance itself.

A move toward the scrapping of older ships will relax vessel supply. And with a stronger Chinese or European economy, it should help the market ameliorate further.

This is the main reason why we took the strategic decision to sell two of our older ships for demolition. With this move and as market leaders, we hope to set an example for our fellow market participants to follow suit.

I will now continue to discuss further our Company's outlook, commencing with our share performance for the first five months of 2015 on slide 16. The performance of our stock is presented along with the S&P index and selected gas carriers peer group.

Although StealthGas stock market a 6% increase during the period examined, it's interesting to note that in reality outperformed both the S&P and the gas peer group. What we find more interesting is that the performance of all gas carrier stocks follow the oil price trend, a strong evidence of the extent to which while prices affect the gas market and investor sentiment on the gas sector.

Proceeding to slide 17, we are showing different scenarios on the Company's performance for the year 2016, when the Company will operate a total of 57 vessels. In general, I hold a conservative view when making predictions. The different scenarios were built based pace on existing fixed charters and operational days with current market levels.

As evident from the table presented, which indicates the effect of various time charter rates on our EBITDA, low rates obviously narrow our EBITDA potential. With our strong fleet in place, we have the capacity in 2016 to reach an EBITDA of $90 million should the market condition permit so. To summarize, we have the infrastructure and market knowhow to navigate safely even during the weak times, and this can be deemed as our Company's biggest success.

Proceeding to slide 18, the final slide of our presentation, we can see the valuation of StealthGas against comparable companies. All companies trade at a discount to NAV while asset values exceed current enterprise values. In that respect, LPG carrier shares including StealthGas offer an attractive entry point.

Our shares trade at a discount to the peer group. And since we are greatly undervalued, we currently offer a good opportunity for medium-term investments.

I will now hand you over to our Chairman, Mr. Jolliffe, who will provide some concluding remarks.

Thank you, Harry. We are pleased with our performance during the first quarter of 2015, as our Company marks record revenues, surpassing $35.5 million in spite of the difficult market environment of the small LPG segment. Indeed, declining freight rates in conjunction with low oil prices have had a negative effect on freight rates for small LPG carriers; and therefore this quarter, compared to the first quarter of 2015, our fleet operational utilization fell to 95.6% and our spot market days increased.

Our Company continues its steady performance, focusing on low leverage and reducing our ships' breakeven even through this challenging environment. We are proceeding with our fleet renewal program consisting of top-quality eco gas carriers; and since the beginning of 2015 to date we have added to our fleet three modern eco LPG newbuildings while scrapping our two oldest vessels, thus lowering our average fleet age to 10.3 years.

Within 2015 we expect our two oldest vessels thus lowering -- sorry, to date we have added to our fleet three modern LPG newbuildings while scrapping our two oldest vessels, thus lowering our average fleet age to 10.3 years. Within 2015, we expect the delivery of another seven eco LPG carriers, mainly from Japanese shipyards.

In addition, our chartering strategy has been proven once again successful, as we managed within the first quarter of 2015 to expand the fleet employment for the year to 66% and increase our secured revenues to $238 million up to 2022, which was $220 million in quarter four 2014.

Most importantly, we have proven to the market that our conservative philosophy works in both good and bad times. Our current outlook for the remaining 2015 is for LPG charter rates to likely mark a further small decrease; and inevitably, we anticipate this to exert pressure on the weakest owners, thus seeing an increase of demolition.

Our strong balance sheet, with a ratio of debt to total assets of 34%, our strong liquidity, and ongoing profitability puts us in a position to address any challenges that might arise in the future. We have now reached the end of our presentation, and we would like to open the floor for your questions. So, operator, please open the floor. Thank you.

(Operator Instructions) Michael Webber, Wells Fargo.

Hey, good morning, guys. How are you? Thanks for the commentary. Just a couple questions, and I wanted to start off with something industry-specific.

Harry, you talked about this a bit in your remarks on rates; but I was hoping you can go into a bit more detail in terms of the differences between what we are seeing in some of the larger-scale gas markets where rates are relatively firm throughout the balance of Q2. And the fact that it hasn't necessarily translated into some of the feeder trades in and around Asia would imply that there is not necessarily -- that the trade is not as volume-driven for the larger assets.

So maybe just any color; whether there is a lag associated with that, that we could see a pickup in the next quarter. You touched on it a bit already, but maybe just a bit more color.

Yes, I think, Michael, as we've discussed before, the rates between the big and the small ships were never correlated. To give an example, two years ago when the rates for the small ships were very firm, the rates for the big ships were very, very, very weak, creating big problems for the owners of these vessels.

Now we are in exact opposite scenario where the rates for the small ships are weak, but the rates for the big ships are very strong. However, do not forget that in the big ships category, the huge order book has not yet been delivered; so, of course, we have to see what will happen when all these new ships fall between now and Q2 2016.

And also, I don't know how many ships in that size segment are above 20 years of age. At least in our case, there has been a number of newbuilding deliveries last year; there are a few more this year. But from 2016 onwards, the newbuilding order book for our type of ships is relatively small.

And if you combine that with the fact that a lot of ships are over-age in our segment, we are sure that if owners continue to feel the pain for the remainder of the year, they will definitely need to scrap. As we said before, we didn't need to scrap because we are very cash rich and we have very low running costs; but we have to show an example, set an example, so we decided to scrap our two older ships.

And hopefully if we are right and the market remains weak until the new year, we hopefully want to see more owners scrapping their 22-, 23-, 24-year-old ships.

Right. I guess what I am getting at is the only way they would be correlated is if there was a bump in, say, long-haul volumes that would trickle down to, say, some of the smaller assets in that trading. But it sounds like what you are saying is that that's not the case and the markets are still very, very bifurcated.

I wanted to touch on buybacks, because we've continued to execute there. I am just curious, with things getting a bit softer, I am sure when you looked at that math, your own shares were then at more value than what you were seeing in either secondhand or in the newbuild market at the time. I am curious if maybe that is expressed as just a spread -- I am curious as to where that math is now relative to where it was, say, earlier this year when you put the buyback in place.

Are we anywhere near a point at which you would maybe start to reallocate some of that capital?

Good question. As you know us, we always have our eyes and ears open for acquisitions. Up to now we haven't seen something that is really fantastic and really very cheaply priced, so we have focused all our time and money to continue to buy back stock.

We are nearly at a half point of the buyback program. We have spent $12 million. We have another $18 million to go, which I think is very positive for our existing shareholders.

Now, again, if we see a quality modern ship from a Japanese yard at a very good price, I am sure that we will discuss it with the Board and we might buy it. But at the moment the prices for brand-new ships have not fallen. They have fallen by 5%, something like that, so we need to see far more pain for a far longer period for people to start discounting these high-quality ships.

Got you. And the buybacks to date, those have all been open market? Or have there been any pipes within that buyback program so far?

The vast majority is in the open market. We have purchased a few blocks, but not significant numbers because not many people want to sell at this kind of valuation, I guess.

Okay. Just one more. I know you mentioned around the newbuilds the debt is currently under negotiation. I would imagine, given the equity backstop, that that is not going to be too big of a problem. But just -- can you talk around terms and when we should expect something to be finalized there?

Yes. I mean we have even written it on the slide to be even more visible for everyone. We have the term sheet on our table for the remaining debt; but obviously we didn't take it, because there is no point of paying fees two years in advance.

So we have decided with the Board to finalize the remaining debt discussions by Q1 2016. So within the next, let's say, six months. So we hope that in Q1 2016 we will announce the finalization of our total debt discussion, and therefore the only money left to be paid will be only the equity remaining for the newbuildings, for the newbuilds, the $67 million.

Okay. Great. That's helpful. Thanks for the color, guys.

Thank you, Michael.

(Operator Instructions) There are no further questions in the phone queue at this time.

We would like to thank you for joining us at our conference call today and for our interest and trust in our Company. We look forward to having you with us again at our next conference call for our second-quarter 2015 results in August. Thank you very much.

That will conclude today's conference call. Thank you, ladies and gentlemen. You may now disconnect.