Jinhui Shipping And Transportation Limited Issues Cautious Note on Dry Bulk Market’s Prospects Among Trade Tensions

2019-08-30 09:16By： xinde marine news

The Board of Jinhui Shipping and Transportation Limited (the “Company”) is pleased to announce the unaudited condensed consolidated results of the Company and its subsidiaries (the “Group”) for the quarter and six months ended 30 June 2019.

SECOND QUARTER RESULTS

Revenue for the second quarter of 2019 decreased 37% to US$14,019,000, comparing to US$22,118,000 for the corresponding quarter in 2018. The Company recorded a consolidated net loss of US$1,147,000 for current quarter as compared to a consolidated net profit of US$2,841,000 for the corresponding quarter in 2018. Basic loss per share was US$0.010 for the second quarter of 2019 while basic earnings per share was US$0.026 for the corresponding quarter in 2018.

HALF YEARLY RESULTS

Revenue for the first half of 2019 decreased 33% to US$26,784,000, comparing to US$40,094,000 for the same period in 2018. The Company recorded a consolidated net profit of US$818,000 for the first half of 2019 while a consolidated net profit of US$5,312,000 was reported in the first half of 2018. Basic earnings per share for the period was US$0.007 as compared to basic earnings per share of US$0.049 for the first half of 2018.

INTERIM DIVIDEND

The Board has resolved not to recommend the payment of any interim dividend for the quarter ended 30 June 2019.

REVIEW OF OPERATIONS

Second Quarter of 2019. Baltic Dry Index (“BDI”) opened at 689 points at the beginning of April and closed at 1,354 points by the end of June. The average of BDI of the second quarter of 2019 was 995 points, which compares to 1,260 points in the same quarter in 2018.

Revenue for the second quarter of 2019 was US$14,019,000 representing a decrease of 37% as compared to US$22,118,000 for the same quarter in 2018. The drop in revenue for the quarter was mainly due to the decline in market freight rates and the reduction in the number of Group’s owned vessels after the disposal of four motor vessels in the second half of 2018. The average daily time charter equivalent rates (“TCE”) earned by the Group’s owned vessels decrease 19% to US$8,934 for the second quarter of 2019 as compared to US$11,008 for the corresponding quarter in 2018.

Shipping related expenses dropped from US$10,189,000 for the second quarter of 2018 to US$7,803,000 for the current quarter. The decrease was attributable to the reduction in the number of vessels as the Group had disposed of four motor vessels in the second half of 2018. Daily vessel running cost decreased from US$4,100 for the second quarter of 2018 to US$3,962 for the second quarter of 2019. We will continue with our cost reduction effort, striving to maintain a highly competitive cost structure when stacked against other market participants.

Due to reduced number of owned vessels, the Group’s depreciation and amortization dropped by 15% from US$4,565,000 for the second quarter of 2018 to US$3,863,000 for the second quarter of 2019.

Finance costs increased from US$714,000 for the second quarter of 2018 to US$1,109,000 for the second quarter of 2019. The increase was mainly attributable to the rising LIBOR that increased our borrowing cost for loans committed on floating rate and the increase in new secured bank loans for the quarter.

The Group entered into respective agreements on 23 April 2019 in respect of the acquisition of two Supramaxes at a total consideration of US$12,000,000. The first vessel was delivered to the Group in May 2019. However, as one of the clauses with regards to a timely delivery of the second vessel under the second agreement cannot be fulfilled by the second vendor, the acquisition of the second vessel according to the second agreement was terminated on 4 June 2019. The initial deposit of US$625,000 lodged with the escrow agent has been refunded to the Group in accordance with the terms of the second agreement.

First Half of 2019. Dry bulk shipping market remained weak in the first half of 2019, amid the negative sentiment and uncertainty arisen from the US-China trade dispute. In the first quarter of the year, the collapse of mining dam in Brazil had disrupted the demand for dry bulk carriers. Both BDI and charter rates had dropped drastically in the first quarter of the year and gradually improved in the second quarter due to limited fleet growth and stabilized dry bulk commodities seaborne trades. The average of BDI for the first half of 2019 was 895 points, which compares to 1,217 points in the same period in 2018.

Revenue for the first half of 2019 decreased 33% to US$26,784,000, comparing to US$40,094,000 for the first half of 2018. The average daily TCE earned by the Group’s fleet decreased 16% to US$8,277 for the first half of 2019 as compared to US$9,892 for the corresponding period in 2018. Basic earnings per share for the period was US$0.007 as compared to basic earnings per share of US$0.049 for the first half of 2018.

Other operating income increased from US$3,094,000 for the first half of 2018 to US$6,062,000 for the first half of 2019 mainly included dividend income of US$767,000, net gain of US$608,000 on disposal of assets held for sale (disposed vessel), net gain of US$2,578,000 on financial assets at fair value through profit or loss and settlement income of US$614,000 from a charterer in relation to repudiation claims.

For the first half of 2019, the Group recorded net gain of US$2,578,000 on financial assets at fair value through profit or loss which was mainly attributable to the realized gain on investment portfolio. We remain cautious with the increased volatility due to the negative effect of the US-China trade war, as well as the fluid outlook of interest rates.

Shipping related expenses for the period reduced from US$19,211,000 for the first half of 2018 to US$15,481,000 for the first half of 2019. The decrease was attributable to the reduction in the number of vessels as the Group had disposed of four motor vessels in the second half of 2018. Daily vessel running cost decreased from US$3,872 for the first half of 2018 to US$3,709 for the first half of 2019. We will continue with our cost reduction effort, striving to maintain a highly competitive cost structure when stacked against other market participants.

FINANCIAL REVIEW

During the six months ended 30 June 2019, capital expenditure on additions of property, plant and equipment was US$7,333,000 (30/6/2018: US$1,902,000) and on investment properties was US$4,330,000 (30/6/2018: nil).

On 20 April 2018, a wholly owned subsidiary of the Company (the “Co-Investor”) entered into the co-investment documents to co-invest in a property project in Tower 3 of Shanghai Financial Street Center, Jing’an Central Business District, Shanghai, the PRC, pursuant to which the Co-Investor committed to acquire non-voting participating class A shares of the holding company of the co-investment vehicle of US$10,000,000. During the first half of 2019, the Co-Investor paid US$2,678,000 (30/6/2018: US$2,352,000) in accordance with the terms and conditions of the co-investment documents and as at the reporting date, the capital expenditure commitments contracted by the Group but not provided for was US$2,495,000 (31/12/2018: US$5,173,000).

On 2 November 2018, the Group entered into a provisional agreement for sale and purchase with the vendor in respect of the acquisition of an investment property at a consideration of HK$30,993,000 (approximately US$3,973,000). The investment property is a Grade A office asset located in one of the most sought after central business district of Hong Kong and is expected to generate steady and recurring stream of income for the Group. The completion date of the acquisition of the investment property was 31 January 2019 and the total costs capitalized were US$4,330,000. As at 31 December 2018, the capital expenditure commitments contracted by the Group but not provided for was HK$26,344,000 (approximately US$3,377,000).

As at the reporting date, the total amount of capital expenditure commitments contracted by the Group but not provided for net of deposits paid, was approximately US$2,495,000 (31/12/2018: US$8,550,000).

The Group’s total secured bank loans increased from US$90,183,000 as of 31 December 2018 to US$118,219,000 as at 30 June 2019, of which 48%, 7%, 36% and 9% are repayable respectively within one year, one to two years, two to five years and over five years. During the first half of 2019, the Group had drawn new revolving loans and term loan of US$49,009,000 for working capital purpose. The bank borrowings represented vessel mortgage loans that were denominated in United States Dollars, revolving loans, term loan and property mortgage loans that were denominated in Hong Kong Dollars. All bank borrowings were committed on floating rate basis.

During the first half of 2019, cash generated from operations before changes in working capital was US$7,774,000 (30/6/2018: US$15,166,000) and the net cash used in operating activities after working capital changes was US$31,888,000 (30/6/2018: net cash from operating activities after working capital changes was US$4,130,000). The changes in working capital are mainly attributable to the increase in equity and debt securities which generally contribute a higher yield than bank deposits. During the first half of 2019, the Group’s net gain on financial assets at fair value through profit or loss was US$2,578,000 (30/6/2018: net loss on financial assets at fair value through profit or loss was US$37,000) and the aggregate interest income and dividend income from financial assets was US$2,280,000 (30/6/2018: US$867,000). As at 30 June 2019, the Group maintained positive working capital position of US$54,208,000 (31/12/2018: US$69,172,000) and the total of the Group’s equity and debt securities, bank balances and cash increased to US$109,835,000 (31/12/2018: US$88,551,000).

The gearing ratio, as calculated on the basis of net debts (total interest-bearing debts net of equity and debt securities, bank balances and cash) over total equity, increased to 3.36% (31/12/2018: 0.65%) as at 30 June 2019. With cash, marketable equity and debt securities in hand as well as available credit facilities, the Group has sufficient financial resources to satisfy its commitments and working capital requirements. As at 30 June 2019, the Group is able to service its debt obligations, including principal and interest payments.

Total fleet 19

During the first half of 2019, the Group had entered into an agreement on 2 January 2019 to dispose a Supramax of deadweight 50,209 metric tons at a consideration of US$7,381,000, which was delivered to the purchaser in March 2019.

Following the above disposal and acquisition of the vessels, the Group’s total carrying capacity had been increased to deadweight 1,136,304 metric tons as at 30 June 2019.

RISK FACTORS

This report may contain forward looking statements. These statements are based upon various assumptions, many of which are based, in turn, upon further assumptions, including the Company’s management’s examination of historical operating trends. Although the Company believes that these assumptions were reasonable when made, because assumptions are inherently subject to significant uncertainties which are difficult or impossible to predict and are beyond its control, the Company cannot give assurance that it will achieve or accomplish these expectations, beliefs or targets.

Key risk factors that could cause actual results to differ materially from those discussed in this report will include but not limited to the way world economies, currencies and interest rate environment may evolve going forward, general market conditions including fluctuations in charter rates and vessel values, financial market conditions including fluctuations in marketable securities value, counterparty risk, changes in demand in the dry bulk market, changes in operating expenses including bunker prices, crewing costs, drydocking and insurance costs, availability of financing and refinancing, inability to obtain restructuring or rescheduling of indebtedness from lenders in liquidity trough, changes in governmental rules and regulations or actions taken by regulatory authorities, potential liability from pending or future litigation, general domestic and international political conditions, potential disruption of shipping routes due to accidents, piracy or political events, and other important factors described from time to time in the reports filed by the Company.

OUTLOOK

The freight market in the second quarter of 2019 continued to be weaker than expected, where demand was hit by the negative sentiment caused by US-China trade conflict and an expectation of slowdown in global growth.

The dry bulk shipping industry demand and supply picture continue to offer a more optimistic sign. Net new supply of the overall dry bulk fleet for 2019 and 2020 remains to be the lowest since the year 2000. The age profile of the global bulker fleet offers further visibility counting over 40 million tonnes as over 20 years of age. The incentive to order newbuildings has been and remain low given the expectation of low global economic growth, the uncertainty on how future regulations will evolve, asset base financing costs on the rise, financial institution adopting a cautious approach towards asset based lending.

Should the underlying long-term demand remain relatively intact, we believe the freight rate will normalize in the positive direction in coming months should US and China manages to eventually resolve their differences.

Changes in technology as well as environmental policies causing changes in global energy mix will have material global implications and as a consequence, will impact the Company’s business. The installation of scrubbers to meet the IMO 2020 sulphur cap emission regulation continued to be a widely debated topic in our industry. We have no plans on the installation of scrubbers given the long term technical and commercial viability of scrubbers on smaller size commercial vessels remains unproven. At this juncture, we continue to believe the use of low sulphur fuel (LSFO) is the most efficient way to protect our planet. Recent studies in the industry also increasingly suggest the premium of LSFO over the traditional marine bunker fuel is likely to be significantly less than expected, further increasing the potential payback period of a scrubber installation. We expect the availability of LSFO will become abundant at reasonable costs with time, given the likelihood of a ramp up in demand from 2020 onwards.

While we have full confidence in mankind’s capacity to respond to events and shape their futures for the better, we have to be mindful that increasingly frequent economic or political surprises can introduce volatility to our business performance, as well as the carrying value of our shipping assets and financial assets. We currently have no capital expenditure commitment in relation to newbuilding contracts, as well as no charter-in contracts at this juncture, and will continue to focus on taking sensible and decisive actions to maintain a strong financial position.

On behalf of the Board of Directors of the Company, I would like to express our heartfelt appreciation to all customers and stakeholders for their ongoing support.