Jinhui Rides the Dry Bulk Market Wave Posting 102% Higher First Quarter Revenues

The Board of Jinhui Shipping and Transportation Limited announced the unaudited condensed consolidated results of the Company and its subsidiaries for the quarter ended 31 March 2022.
 

FIRST QUARTER RESULTS

Revenue for the first quarter of 2022 increased 102% to US$32,636,000, comparing to US$16,181,000 for the corresponding quarter in 2021. The Company recorded a consolidated net profit of US$19,018,000 for current quarter as compared to a consolidated net profit of US$5,253,000 for the corresponding quarter in 2021. Basic earnings per share was US$0.174 for the first quarter of 2022 as compared to basic earnings per share was US$0.048 for the corresponding quarter in 2021. The improved operating results for the quarter was primarily due to the upsurge of market freight rates in dry bulk shipping sector and the increase in number of owned vessels that led to a significant increase in the chartering freight and hire revenue, and a net gain of US$6,146,000 was recognized on completion of the disposal of two Supramaxes in the first quarter of 2022.

INTERIM DIVIDEND

The Board has resolved not to recommend the payment of any interim dividend for the quarter ended 31 March 2022.
 

REVIEW OF OPERATIONS

First Quarter of 2022. At the start of the year 2022, there had been some corrections in the freight market, affected by multiples issues from seasonal trading patterns such as Chinese New Year holidays, decrease in industrial activity during Beijing Olympics, volatility in commodity prices, to continued disruptions in global supply chain which in turn affected industries from commodities all the way through to the export of manufactured goods. The market freight rates soon began to regained strength thereafter driven by the robust demand for dry bulk commodities and limited supply of vessel in the first quarter of 2022, despite the simultaneous occurrence of multiple geo-political issues. Baltic Dry Index (“BDI”) opened at 2,217 points at the beginning of January and hit to the low at 1,296 points at end of January, then rose gradually to the peak of the quarter at 2,727 points and closed at 2,358 points by the end of March 2022. The average of BDI of the first quarter of 2022 was 2,041 points, which compares to 1,739 points in the same quarter in 2021.

Revenue for the first quarter of 2022 was US$32,636,000 representing an increase of 102% as compared to US$16,181,000 for the same quarter in 2021 due to the upsurge of market freight rates and the increase in number of owned vessels. The Group benefited from the strong rebound of market freight rates and the average daily time charter equivalent rates (“TCE”) earned by the Group’s owned vessels increased 70% to US$17,510 for the first quarter of 2022 as compared to US$10,279 for the corresponding quarter in 2021. The fleet utilization rate of the Group’s owned vessels slightly increased from 95% in the first quarter of 2021 to 96% in the first quarter of 2022.
 

During the quarter, the Group entered into two agreements to dispose of two Supramaxes of deadweight 53,806 and 50,259 metric tons respectively at total consideration of US$17,750,000 with a net gain of US$6,146,000 which was recognized on completion of the disposal of these two vessels in the first quarter of 2022.
 

Other operating income increased from US$2,598,000 for the first quarter of 2021 to US$8,156,000 for the current quarter mainly due to a net gain of US$4,550,000 on bunker arising from shipping operations was recognized for the first quarter of 2022 as compared to a net gain of US$1,391,000 for the corresponding quarter in 2021. In addition, the Group recorded a net gain of US$2,560,000 on financial assets at fair value through profit or loss for the current quarter as compared to a net gain of US$187,000 for the corresponding quarter in 2021.
 

Shipping related expenses mainly comprised of crew expenses, insurance, consumable stores, spare parts, repairs and maintenance and other vessels’ expenses. Shipping related expenses increased from US$6,912,000 for the first quarter of 2021 to US$14,938,000 for the current quarter mainly due to the inflation and the increase in number of owned vessels that led to an increase in shipping related expenses for the quarter. The Group’s daily vessel running cost increased to US$5,682 for the first quarter of 2022 as compared to US$3,664 for the first quarter of 2021 mainly due to the increased crew costs. We will continue with our cost reduction effort, striving to maintain a highly competitive cost structure when stacked against other market participants.
 

Depreciation and amortization increased from US$3,646,000 for the first quarter of 2021 to US$8,558,000 for the first quarter of 2022 mainly due to the increase in carrying amounts of the owned vessels after the recognition of the reversal of impairment loss on owned vessels in 2021 and the increase in number of owned vessels.
 

Finance costs dropped from US$498,000 for the first quarter of 2021 to US$416,000 for the first quarter of 2022. The decrease was mainly attributable to the constant repayment of vessel mortgage loans as compared with that of the corresponding quarter in 2021.
 

FINANCIAL REVIEW

During the quarter, capital expenditure on additions of motor vessels and capitalized drydocking costs was US$42,020,000 (31/3/2021: US$7,282,000) and on other property, plant and equipment was US$19,000 (31/3/2021: US$32,000).
 

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 A of One Financial Street Center, Jing’an Central Business District, Shanghai, the PRC (the “Tower A” or previously named as “T3 Property”), pursuant to which the Co-Investor committed to acquire non-voting participating class A shares of Dual Bliss Limited (“Dual Bliss”) of US$10,000,000. Dual Bliss is one of the investors of the co-investment in Tower A. As at the reporting date, the capital expenditure commitments contracted by the Group but not provided for was US$372,000 (31/12/2021: US$372,000).
 

On 28 March 2022, the Group entered into an agreement in respect of the acquisition of a Supramax of deadweight 63,485 metric tons at a purchase price of US$25,500,000, which will be delivered to the Group on or before 29 July 2022. As at the reporting date, the capital expenditure commitments contracted by the Group but not provided for was US$25,500,000 (31/12/2021: nil).
 

In December 2021, the Group entered into two agreements in respect of the acquisition of two Supramaxes each at a consideration of US$17,250,000 and the total consideration of the two vessels is US$34,500,000. The first vessel is deadweight 56,361 metric tons and the second vessel is deadweight 56,469 metric tons. The first vessel was delivered to the Group in February 2022 and the second vessel was delivered to the Group in March 2022. As at 31 December 2021, the capital expenditure commitments contracted by the Group but not provided for was US$34,500,000.
 

As at the reporting date, the total amount of capital expenditure commitments contracted by the Group but not provided for was US$25,872,000 (31/12/2021: US$34,872,000). Save as disclosed above, there was no other significant capital expenditure commitments contracted by the Group but not provided for as at the reporting date.
 

During the quarter, the Group entered into two agreements to dispose of two Supramaxes of deadweight 53,806 and 50,259 metric tons respectively at total consideration of US$17,750,000 with a net gain of US$6,146,000 which was recognized on completion of the disposal of these two vessels in the first quarter of 2022.
 

We will continuously monitor the market as well as our operations going forward and look out for opportunities to maintain a reasonably modern and competitive fleet, not ruling out any future disposal, acquisition or charter-in of vessels and will make such decisions on an ad hoc basis to maintain high financial flexibility and operational competitiveness.

The Group’s total secured bank loans increased from US$92,578,000 as of 31 December 2021 to US$94,927,000 as at 31 March 2022, of which 60%, 24% and 16% are repayable respectively within one year, one to two years and two to five years. During the quarter, the Group had drawn new revolving loan and term loan of US$15,385,000 (31/3/2021: US$12,556,000) and repaid US$13,036,000 (31/3/2021: US$3,169,000).

The bank borrowings represented vessel mortgage loans that were denominated in United States Dollars, revolving loans, term loans and property mortgage loans that were denominated in Hong Kong Dollars and United States Dollars. All bank borrowings were committed on floating rate basis.
 

During the quarter, cash generated from operations before changes in working capital was US$21,471,000 (31/3/2021: US$7,714,000) and the net cash generated from operating activities after working capital changes was US$26,400,000 (31/3/2021: net cash used in operating activities after working capital changes was US$2,102,000). The changes in working capital are mainly attributable to the decrease in equity and debt securities. During the quarter, the Group’s net gain on financial assets at fair value through profit or loss was US$2,560,000 (31/3/2021: US$187,000). The net gain of US$2,560,000 on financial assets at fair value through profit or loss comprised of a realized gain of US$1,800,000 upon disposal of certain equity and debt securities during the quarter, and an unrealized fair value gain of US$760,000 on financial assets at fair value through profit or loss for the quarter. The aggregate interest income and dividend income from financial assets was US$381,000 (31/3/2021: US$1,569,000).
 

As at 31 March 2022, the Group maintained positive working capital position of US$32,785,000 (31/12/2021: US$37,887,000) and the total of the Group’s equity and debt securities, bank balances and cash increased to US$77,652,000 (31/12/2021: US$76,407,000).
 

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, was 4% (31/12/2021: 4%) as at 31 March 2022. 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 31 March 2022, the Group is able to service its debt obligations, including principal and interest payments.
 

Subsequent to the reporting date, the Group entered into a charterparty with a third party on 20 May 2022 in respect of leasing of a Panamax of deadweight approximately 84,000 metric tons for a term of seven years commencing on the date of delivery of the vessel to the Group, which is expected to be delivered between 11 June 2022 and 30 June 2022. In accordance with IFRS 16 and HKFRS 16 Leases, the Group will recognize the unaudited value of the right-of-use asset on its consolidated statement of financial position in connection with the leasing of the vessel under the charterparty. The unaudited value of the right-of-use asset is estimated to be approximately US$24.6 million, which is calculated with the present value of total minimum hire payment at the inception of the lease terms of the charterparty in accordance with IFRS 16 and HKFRS 16. The Directors consider that the lease of a Panamax newbuilding represents an opportunity for the Group to increase the carrying capacity with a modern ship via means other than outright acquisition of vessels, improving the fleet profile of the Group with minimal immediate capital expenditure.
 

FLEET

Owned Vessels

As at 31 March 2022 and 30 May 2022, the Group had twenty four owned vessels as follows:
 

In December 2021, the Group entered into two agreements in respect of the acquisition of two Supramaxes each at a consideration of US$17,250,000 and the total consideration of the two vessels is US$34,500,000. The first vessel is deadweight 56,361 metric tons and the second vessel is deadweight 56,469 metric tons. The first vessel was delivered to the Group in February 2022 and the second vessel was delivered to the Group in March 2022.
 

During the quarter, the Group entered into two agreements to dispose of two Supramaxes of deadweight 53,806 and 50,259 metric tons respectively at total consideration of US$17,750,000. Both vessels were delivered to the purchasers at end of March 2022.
 

On 28 March 2022, the Group entered into an agreement in respect of the acquisition of a Supramax of deadweight 63,485 metric tons at a purchase price of US$25,500,000, which will be delivered to the Group on or before 29 July 2022.
 

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

So far for 2022, the freight environment has been steady driven by a general robust demand for commodities worldwide. As discussed before, volatility is expected given any changes in monetary policies or material geo- political issues will affect business sentiment, or in some cases business practices or trade patterns will be affected.
 

When we look at the industry fundamentals, the supply of new vessels remain low, the industry outlook continues to point towards a relatively healthy freight market for our business operations. Demand for commodities is expected to remain robust. In fact, transportation of certain commodities will undergo profound changes and one of the possible results will be a significant increase in tonne miles due to international sanctions against Russia. Logistics of the transportation of goods and commodities continue to experience bottlenecks and disruptions are likely to continue to be present in the foreseeable future depending on countries and regions.
 

With the expected global dry bulk fleet growth at historical lows, and with no consensus in the shipping with regards to the next generation engine design to reduce carbon emission, new vessel orders are expected to be few. Looking ahead, this potentially highly favorable demand and supply dynamics is expected to continue, where our fleet is well positioned to benefit.
 

We remain alert to the increasingly frequent economic, geo-political, or other unforeseen surprises that can trigger 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, 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 first express our heartfelt appreciation to our seafarers who have continued to remain professional under an extremely challenging environment, as well as all customers and stakeholders for their ongoing support.

Source: Jinhui Shipping and Transportation Limited

Please Contact Us at：

media@xindemarine.com