BW LPG Optimistic About LPG Freight Rate Market Despite Coronavirus
Quarterly fleet wide VLGC freight rates averaged US$50,600 per day, with spot earnings of US$56,000 per day
Declared Q4 2019 cash dividend of US$0.42 per share bringing total dividends declared for 2019 to US$0.85 per share
Leverage ratio decreased from 59% in Q1 2019 to 52% at the end of 2019
Write-back of fleet impairment charge of US$38 million as broker-based fleet valuation increased
Adjusted the useful life assumption of its vessels from 30 years to 25 years, effective 1 January 2020
One chartered-in VLGC newbuild was delivered in February 2020
Exercised options for the delivery and retrofitting of eight additional dual-fuel LPG propulsion engines in February 2020
Amended the existing US$458 million Senior Secured Facility in February 2020 to convert US$100 million of Term Loan to a Revolving Credit Facility
Time Charter Equivalent (TCE) income increased to US$191.6 million in Q4 2019 (Q4 2018: US$84.6 million), mainly attributable to higher LPG spot rates and higher fleet utilisation. EBITDA for the quarter amounted to US$ 154.1 million (Q4 2018: US$35.7 million) with an EBITDA margin of 80.4% (Q4 2018: 42.1%), generating a net profit after tax of US$153.8 million (Q4 2018: loss after tax of US$34.1 million).
TCE income in FY 2019 totalled US$547.3 million (FY 2018: US$300.9 million). EBITDA for the year amounted to US$398.8 million (FY 2018: US$104.1 million), with an EBITDA margin of 72.9% (FY 2018: 34.6%), generating a net profit after tax of US$273.9 million (FY 2018: loss after tax of US$72.4 million).
Earnings per share was US$1.11 for Q4 2019 (Q4 2019: loss per share of US$0.24) and US$1.97 for FY 2019 (FY 2018: loss per share of US$0.51). After adjusting for the US$38 million write-back of fleet impairment charges, earnings per share was US$0.83 for Q4 2019 and US$1.70 for FY 2019.
The Company’s Return on Equity was 54.9% in Q4 2019 (Q4 2018: -13.6%) and 25.3% for FY 2019 (FY 2018: -7.0%).
In light of the strong financial performance, the Board declared a Q4 2019 cash dividend of US$0.42 per share, amounting to US$52 million. This brings the total dividends declared for 2019 to US$0.85 per share, amounting to US$118 million. The dividends will be paid around 13 March 2020 to shareholders on record as at 5 March 2020. The shares will be traded ex-dividend from 4 March 2020.
As previously announced, two LGCs were sold in Q4 2019, with the first vessel delivered in December 2019 and the second vessel with expected delivery in March 2020. The delivery of the last LGC in March 2020 is expected to generate US$15 million in liquidity and a net gain of US$5 million.
In February 2020, BW LPG exercised options for the delivery and retrofitting of eight additional dual-fuel LPG propulsion engines. With this, BW LPG has committed to retrofit 12 vessels with pioneering propulsion technology. The conversions for the first four will start in 2020 and the next eight in 2021.
Effective 1 January 2020, the vessel useful life has been revised from 30 years to 25 years given new regulatory requirements. This prospective change will increase depreciation expense by approximately US$23 million for FY 2020.
For 2020, we continue to have a positive freight outlook, supported by sustained U.S LPG exports despite a high number of newbuild deliveries in the first half of the year. So far, in Q1 2020, we have seen limited impact from the COVID-19 outbreak on LPG freight rates. However, the unpredictable development of this outbreak has increased uncertainty with potential near-term impact on LPG imports into China and longer-term impact on LPG production following the decline in oil and gas prices.
We expect the scheduled terminal expansions by Enterprise and Targa in the latter half of 2020, combined with an increasingly likely easing of the U.S.-China trade war, to support strong U.S. export growth.
We see little potential for growth in Middle Eastern exports in 2020 due to the uncertainties on whether OPEC+ production cuts will be extended, and heightened political tensions in the region.
For the longer term, we maintain our view that sustained U.S. LPG production growth and no further newbuild orders remain key to a balanced VLGC market.
Source: BW LPG