StealthGas Inc (GASS) 2017 Q4 法說會逐字稿

Good day, and welcome to the StealthGas Fourth Quarter and Final Year Results 2017 Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Harry Vafias, CEO. Please go ahead, sir.

Good morning, everybody, and welcome to our fourth quarter '17 earnings conference call. This is Harry Vafias, the CEO of StealthGas. And joining me on the call today is our Finance Officer, Mrs. Fenia Sakellaris, who will provide commentary on our financial performance during the same period.

Before we commence our presentation, I would like all of you to be reminded that we'll be discussing forward-looking statements, which reflect current views with respect to future events and financial performance. At this stage, if you could all take a moment to read our disclaimer on Slide 2. It's noted that the risks are further disclosed in StealthGas' filing with the Securities and Exchange Commission. You would also like to note that all amounts quoted unless otherwise clarified are implicitly stated in U.S. dollars.

Slide 3 summarizes our key highlights for the fourth quarter of '17. Taking advantage of the positive momentum that the small LPG market is in, we managed to achieve a remarkable operational utilization of 97.2%.

Looking at the whole of '17, our idle days were reduced by 58%, compared to 2016, while our average fleet age was reduced from 9.6 years in the beginning of '17 to 9.2 years today.

The market for our dominant segment, that of small LPGs, has clearly strengthened, with rates increasing over the past year by about 25%.

Although a number of our vessels are still on legacy charters, this escalation in rates ensured the boost to our revenues, but obviously, it will be more evident from Q1 '18 onwards.

We ended the fourth quarter of '17 with $38.5 million in revenue, despite the reduced fleet, resulting from the sale of the 4 older vessels and EBITDA of $15 million.

Looking at the whole of '17, compared to '16, our performance was evidently improved as revenue increased by $10.2 million. And our net income, excluding noncash items, was in the order of $5.4 million.

As per our leverage and cash position, our gearing remains at low levels around 39%, while we still maintain a healthy unrestricted cash balance of approximately $52 million.

Slide 4 provides an analysis of our fleet employment. In terms of charter types, out of a fleet of 54 operating vessels, we have 14 on bareboat; 29 on time charters; 11 spot, 4 of which are employed in a series of consecutive spot voyages. During the past 3 months, we successfully concluded 8 new period contracts. And we are quite pleased that all of our newly delivered semi-ref vessels are employed under time charter contracts.

We have announced several new charters and charter extensions in the past 6 months, around 25 in total. The majority of which commenced in January '18. Therefore, revenue impact from rising rates will be stronger starting from the first quarter of this year.

We already have solid coverage for '18 in the order of about 65% with about $196 million in contracted revenues.

With regards to our fleet geography presented in Slide 5, our company focuses on regional trade and local distribution of gas. This graph is a snapshot of the positioning of our LPG vessels as of February 10, 2018. Currently, 46% of our LPG fleet trades in the Middle and Far East, 28% in Europe, 12% in Africa, 8% in America and 6% in Australia.

In the fourth quarter of '17, we slightly increased our presence in Africa, with 6 of our vessels trading in that area.

In terms of trading products, our mix is currently 60% trading LPG and 40% trading petchems, petrochemicals.

Slide 6 provides you with an analysis of our remaining capital expenditure program. In January '18, we took delivery of the Eco Arctic and Eco Ice, our second and third 22,000 new eco semi-ref vessels. These deliveries were successful. And in terms of funding, our company resulted with an excess balance of $4 million, following the loan drawdowns for the aforementioned vessels.

Our fourth and last delivery will take place mid-April. And looking at the table on the left, our remaining CapEx, excluding any related advances paid to date, is in the order of about $32 million. In terms of advance payments, we have paid a total of $20.8 million as advance payments for our last semi-ref newbuilding. And in relation to the financing, as shown on the graph on the right, from a total contract value of $52.8 million, $20.8 million are advances paid up to date, $31 million is committed loan, leaving us with an additional equity required of only -- approximately $1 million.

I now turn you to -- the call to Mrs. Fenia Sakellaris for our financial performance discussion.

Thank you, Harry, and good morning to everyone. Fourth quarter of 2017 had strong performance aspect. Demand in the small LPG segment had clearly picked up with our operational utilization reaching 97.2%. That is exceeding the levels of 2012, where market rates in our segment were much higher than current levels. We concluded contracts with the improved rates and we expect the impact to be more visible in the first quarter of '18.

Our profitability, however, was quite hindered for reasons that will be explained in full detail below. Let us move on to Slide 7, where we see the income statement for the fourth quarter of '17, against the same period of the previous year.

Voyage revenues came at about $38.5 million, an increase of 2.5% compared to the fourth quarter of '16. This increase is attributed to the high utilization of our fleet and improved rates, as in the fourth quarter, we operate with less vessels than in 2016, following the sale of some of our older vessels.

In the last quarter of '16, the revenue contribution of the vessels we sold was $2 million. In addition to these, due to softer market conditions, our revenues from the tankage of our fleet were reduced by 10% compared to 2016, and other factors hindering our revenue.

Voyage cost amounted to $4 million, marking a 6% increase compared to Q4 '16, due to higher number of vessels operating spot in the quarter-on-quarter increase of average bunker price by 19%.

Net revenues, that is revenues after deducting voyage costs, came at $34.5 million, corresponding to a net revenue margin of 90%.

Running cost of $50 million marked the $500,000 increase compared to Q4 '16. This increase is attributed to the operation of our 22K semi-ref vessel of Eco Frost not yet delivered in 2016, and one of our prudent tankers operating on time charter and in the spot market, which was previously unbearable during the fourth quarter of '16.

In addition this quarter, we faced slightly higher maintenance costs for some of our older vessels that previously faced significant idle time. With regards to drydocking cost, this amounted to approximately $1 million resulting from the drydocking of 2 vessels for which we faced increased cost due to their trading areas.

Our EBITDA for the fourth quarter of the year came at $15 million, marking a $5.6 million rise compared to Q4 '16.

Interest and finance cost marked an increase of about $750,000, mostly as a result of an increase in LIBOR rates. With a net income of $750,000, our earnings per share for the fourth quarter of '17 was $0.02.

Looking briefly at our annual results, our improved performance is much more evident as we marked a revenue increase of $10.2 million while excluding noncash items, 2017 generated a profit of about $5.4 million.

Slide 8 demonstrates our performance indicators for the periods examined. As mentioned earlier on, our operational utilization for Q4 '17 was in the order of 97.2% and 96.2% for the whole of 2017, a clear improvement compared to the previous years.

High demand and an improvement in day rates were translated to a stronger adjusted time charter equivalent of about 8,500, marking a 7.5% increase against the same period of last year.

Looking at our balance sheet at Slide 9, in 2017, we managed to preserve very good liquidity of $52 million in free cash and maintain our gearing at low levels in the order of 39%.

At this stage, we would like to mention that we have received commitment for the refinancing of $26.3 million, that is all the balloon payments due in 2018 for the Gas Myth, the Gas Haralambos, and the Gas Elixir. These deliveries will be scheduled principal-only payments for 2018 of about $42 million. Moreover, in light of recent LIBOR hikes, we increased our hedging coverage about 27% -- 25% of our outstanding loan portfolio, as we recently entered into some new swap deals.

Slide 10 presents on a daily basis the evolution of our breakeven against our average time charter equivalent. What we notice is that our average time charter equivalent has stabilized at high levels compared to previous quarters.

I will now hand you over to our CEO, Harry Vafias, who will discuss market and company outlook.

Let's proceed now with Slide 11. Seaborne trade in 2017 totaled 92.9 million tons, up by 2.5 from the previous year. China remains the biggest importer at 17 million tons. However, India is the country experiencing the largest increase in LPG imports, surpassing Japan and therefore, becoming the second larger LPG importer.

The Indian government continues to incentivize the use of LPG through subsidies. U.S. exports continued its rapid expansion, recording a growth of 4.2 million tons to a total of 29.6 million tons.

Focusing on coastal LPG trading areas, Europe is the largest market for -- for whole trade, followed by the intraregional trade between the Far East countries.

In terms of trading of products, we see a solid growth in petrochemical trade, which is anticipated to grow further, benefiting mostly the smaller tonnage.

On Slide 12, we see that during 2017, rates for almost all LPG segments continued to be on the rise.

The 3,500 cubic meter segment ended the year with around 230,000 per month, having started the year at around 180,000 a month, a gain of nearly 25%. After all, it's evident in the past quarters that we're experiencing a gradual upward market trend, which is anticipated to continue.

In terms of trade, west of [Suez] portage have reached their highest in 2, 3 years.

There, also less competition from semi-ref vessels. There is still a significant number of the larger pressurized vessels of 7K cubic meters a knot in the spot market but they have been keeping busier the last couple of months.

In the East, on the (inaudible) side, the activity has continued and charters have been keen to lock in time charter coverage to avoid the risks of a tight spot market. 5,000 cubic meter ships remain in tight supply. We expect to see a stable to firming trend on the period rates throughout the year.

In terms of scraping, the small LPG pressurized segment has substantial old tonnage. 23% of the fleet is above 20 years of age. Take into consideration the UN environmental regulations, which will come into effect around 2020, we anticipate a boost in recycling activity, which might even trigger a contraction of the global LPG coastal fleet.

As per published orders, there are 6 vessels, that is only 1.7% of the total fleet to be delivered in the period 2018, 2019. The limited order book of our segment is another positive factor for rates and existing tonnage demand.

Slide 13, we continue with our share performance. The performance of our stock is presenting along with the selected gas carrier peer group. It's evident that those stocks presented, follow a broad correlation with oil price movement. During this period, we show a rise in oil prices, largely driven by the crude output cuts from producing nations. Particularly after November 17, when OPEC and other big oil prices agreed to extend production curbs until the end of '18, oil prices rose significantly.

During the past year, our company stock clearly follows an upward trend, led mostly by improved financial performance, and overall improved sentiment around energy-related stocks. In order to be more specific, StealthGas stock has marked an increase of about 15% year-on-year.

On Slide 14, we're showing different scenarios on our company's performance for '18. The different scenarios were created based on our existing fixed charters plus vessels opened on the spot market are showing no new charters upon the expiration of the fixed vessel.

Revenues were calculated using an estimated spot rate based on current market, and an individual utilization rate for each vessel.

This forecast includes the larger semi-ref newbuilding, which -- with each respective delivery for which we have used a very conservative assumption. We can see throughout the quarters examined that the hypothetical $500 increase in spot rates will significantly leverage our earnings, while a $2,000 hike in daily rates will lead to a boost of approximately $14.5 million to our annual EBITDA.

This table shows our company's potential if there is a further rate strengthening. A realistic scenario, given current market condition, and the fact that rates climbed by almost 7% only in the last quarter.

Proceeding to Slide 15, we can see some variation multiples of StealthGas against comparable companies. As evident, or company trades at a greater discount than its peers in terms of a net asset value, despite its safe capital structure, less gearing than its peers and market-leading share of the pressurized market.

We would like to point out that the selected peer group is comparable in terms of broader seaborne LPG trade, as no other company in the small LPG segment that we operate in is listed on any U.S. stock exchange.

The lack of a true comparable company and also low share of volume are key reasons why we think our stock is undervalued.

Concluding our presentation with Slide 16, we summarize all the reasons why we feel StealthGas is a good investment as the market-leading company in a niche market with promising fundamentals that during the past quarters have slowly started to materialize.

At this stage, I will summarize our concluding remarks for the period examined.

The fourth quarter of '17 was mixed. On the one hand, we were pleased that our core market of small LPGs shows clear signs of improvement, which should continue to leverage our earnings. In this market, we achieved an outstanding fleet operational utilization of 97.2%. On the other hand, the sale of our 4 older vessels and the weakening of the tanker market affected our revenue growth, somewhat obscuring the improved revenues of our core fleet. Nevertheless, excluding impairment charges, our annual results demonstrated clear improvements, both in revenues and profitability. In addition, with the delivery of our 2 22,000 semi-ref newbuildings in January '18, our asset base increased to $1.1 billion. We have numerous charters, which commenced at the beginning of '18, and several vessels yet to fix, all of these in a better market environment reflecting the benefits of our traveling policy.

In terms of strategy, we intend the upcoming year to take advantage of the positive market momentum of the small LPG market. We'll focus our efforts on capitalizing our dynamic fleet over the past couple of years, by placing a strong emphasis on taking advantage of the unique and improving supply and demand fundamentals for our core segment.

With assets totaling $1 billion, low gearing and CapEx of around $31.2 million of which equity is only $1 million, we're looking forward to an exciting 2018.

We have now reached the end of our presentation. We'd like to open the floor for your questions. So Operator, please open the floor.

(Operator Instructions) We'll take our first question today, which comes from Randy Giveans from Jefferies.

Quick questions on the Arctic and the Ice for the charters through 2020. What are those rates on average or an estimate? 15,000 a day, 12,000, 18,000?

Yes. Good question. We have not disclosed publicly the rates. But I can tell you that they are about breakeven levels. So you can do your maths on that.

Got it. Breakeven, that's okay.

All-inclusive breakeven, just to clarify. All-inclusive breakeven, not OpEx, of course. All-inclusive breakeven.

Not just cash, net income breakeven. Okay. And then you have 7 vessels older than 20 years of age, so what are your kind of fleet growth or renewal plans for those? And with that, do you expect your fleet to be a little larger or a little smaller than it is currently or next year?

Randy, excellent question. I mean as I think we have discussed, the idea last year was to sell some of those for scrap. But the good market caught up with us and we found trading sellers for them, and thus we were able to sell those very old ships at a nice premium over demolitions. Sometimes, in some cases, up to 200%, which is an amazing boost to our bottom line. The idea is to slowly dispose of the vessels. Now, how quickly, who knows? The plan is not to immediately replace them as we have been taking delivery of brand new ships nonstop over the last 3 years. So it all depends on what the market does, what the prices do and what our share price does. Because if we still trade at such discount to NAV, there's no point of adding more ships at NAV, right?

Sure. Yes. That's fair. So speaking of NAV, let's look at that. So your price to NAV is 30%, so you're saying your NAV is, what, $14?

I haven't done the maths today because you know it changes weekly. But a safe number would be $13.

Okay. It's hard to calculate that, obviously, unlike the dry bulk market, there's not a huge S&P market for these kinds of smaller LPG vessels. So I guess what value you're using there is a big difference because our NAVs, I don't know, $7, $8. So you're using kind of last done asset valuations? Or how are you getting to your, I guess, the fleet?

Randy, I would tend to agree with you. It's not, of course, as liquid as dry is. But especially, in 2017, we saw a big number of ships being sold, which gives some valuation ideas. And every 6 months, we take 2 independent valuations for the whole fleet and base this on those evaluations, we come up with a NAV. So this is how we do it. And the number is around $13.

Okay. Sounds good. And then with that, I guess looking at your cash balance, looking at pretty significant free cash. I know you may have one more delivery coming, I guess, in April now. So kind of uses of free cash going forward, if you're at a 30% of NAVs, seems like share repurchases might seem attractive here.

Yes. If -- when we announced the Q1 results, the market continues to be going as strong as it has been until now. And we have sorted out the tankers as well because we have the phenomenon where tankers are going down and LPGs are going up. Thank God, we only have 4 tankers. Yes, and the stock is still at such a huge discount to NAV, then obviously, we will go to the board with a request for further share repurchases. Don't forget that during the bad times, we spent close to $21 million to buy back our own stock.

Yes. No, I think that was a good play there. And hopefully going forward, you'll have more opportunities or obviously -- if the share price recovers, maybe not, but...

I hope we don't have the opportunity.

(Operator Instructions) And our next question today comes from Greg Weiss from Boston Partners.

So I'm kind of intrigued by the supply-demand case you outlined, just looking at your presentation. Your -- obviously, your fundamentals have been getting better recently. But with -- as you say 23% of the fleet over 20 years old and virtually no orders, I just kind of -- what's the tipping point here? One, if you order ships today, when are they -- when can you order ships for? And if we're going to have -- with essentially either no growth or a negative fleet growth and increasing demand, which it seems like you're pointing to, are -- is this -- are you losing share to bigger ships? Or is your fundamentals -- is your market going to continue to get tighter, going forward?

First of all, if you order a ship now, you need between 18 and 24 months to take delivery. Secondly, we're very lucky because the huge Chinese yards that are building bulkers and container ships like crazy, don't want to build those little LPG ships. So we are protected from these Chinese mega yards. Thirdly, the big ships cannot really eat in our business because they don't have the size -- they don't have the small size needed to do go to the majority of the ports that we visit. So I think it will all lead to a tighter market, which hopefully will lead to tighter rates, as we saw back in 2012, again, back in 2008, and again back in 2005.

Got it. Okay. So why do you think we have not seen ordering in your sector?

Because it's quite simple, Greg. In this business, there are only 2 big companies of which both don't -- who don't want to order ships. Then you're left with another 10, 15 smaller companies of which half of them were nearly bankrupt and the other half don't have finance because they were bleeding money for the last 3 years. If the market continues to improve, some of these people will find money and might order. But we're not worried that we're going to see a huge wave of ordering like it happened in the last 9 months on the dry side, on the container side. We are protected from that because of the bottleneck of the yard capacity.

All right. Congratulations, it sounds like hopefully things continue to move in the right direction, which based on the supply-demand, it sounds like it should.

Fingers crossed for the Q1 results.

I commend you, Harry because I don't think you're given enough credit sometimes on navigating the bottom of the cycle without a stressed balance sheet. You deserve -- versus what we've seen in other classes of the shipping sector where companies become extremely distressed.

Thanks, Greg. I mostly hear the negative things and very few people do say the positive things. You are one of the older shareholders and an old friend. So I do appreciate the comments because you know how hard we've been working in the last 3 years to keep the ships steady and keeping the balance sheet in a healthy mode.

(Operator Instructions) Okay. We don't seem to have any further questions today. I'll hand back over to you for any closing remarks. Thank you.

We would like to thank everyone for joining us at our conference call today and for your interest and trust in our company. And we look forward to having you with us again at our next conference call for our first quarter results in May. Thank you.

Thank you. Ladies and gentlemen, that will conclude today's conference call. Thank you very much for your participation today. You may now disconnect.