BW LPG Q1 2021 Analysis – A Returns Focused LPG Shipping Company

A Returns-Focused LPG Shipping Company.

Q1 2021 Highlights

• Achieved Q1 2021 VLGC freight rates of USD 43,300 per calendar day, or USD 44,400 per available day with 97% commercial utilization
• Generated Q1 2021 net profit after tax of USD 71 million or an earnings per share of USD 0.51
• Declared Q1 2021 cash dividend of USD 0.18 per share amounting to USD 25 million
• Achieved Q1 2021 annualized return on equity of 22% with USD 96 million of free cash flow
• Increased ownership in Indian Joint Venture to 85%, with five vessels now trading in India; and secured a five-year term loan for up to USD 198 million

Overview

The first quarter of 2021 was eventful. Towards the latter half of January, the extreme cold weather in the US narrowed the LPG price arbitrage between the US and the Far East from over USD 200 per metric tons to below USD 100. Falling LPG exports from both the US and the Middle East led to one of the quickest and most pronounced corrections in VLGC freight rates in history. Leveraging on decades of operating experience, BW LPG navigated through extreme volatilities and challenging market conditions – returning value to our shareholders, expanding our presence in India, securing financing at attractive terms, and keeping our LPG retrofitting program on track.

Returning Value to Shareholders

In Q1, we delivered best in class returns with 22% annualised return on equity and 14% annualised return on capital employed. With a strong cash flow from operation, we returned cash to our shareholders and paid down debt. In Q1, we declared a dividend of USD 0.18 per share, amounting to USD 25 million. Our net leverage ratio continues to trend down, from 44% in the fourth quarter of 2020, to 42% at the end of Q1, the lowest level in five years.

Propelling Our Fleet With LPG

Our program to retrofit 15 VLGCs with LPG propulsion technology continues, on budget and with zero safety incidents. This translates to a commitment of over USD 130 million, the sector’s largest investment towards decarbonization. We are proud to act on our promise to decarbonize, and transition towards cleaner fuels for a cleaner environment.

Commercial Performance

In Q1, TCE rates for our VLGC fleet averaged USD 43,300 per calendar day. Commercially, we achieved USD 44,400 per available day with a high commercial utilisation of 97%. This performance translates into net profit after tax of USD 71 million and an earnings per share of USD 0.51. In Q2, we have fixed approximately 80% of our available days at an average rate around 28,000 dollars per day, on a discharge-to-discharge basis.

Fueling India’s Cleaner Energy Future

In India we are strengthening our market leading position in LPG shipping imports. We increased our ownership in our Indian Joint Venture from 50% to 85%; and added an additional VLGC to the fleet in Q1 2021, making a total of five vessels now trading on time charter contracts at accretive rates and returns in India. The subsidiary also secured a five-year term loan for up to USD 198 million from a syndicate of 7 banks, at an all-in cost of LIBOR plus 1.98%.

Over the past five years, the Indian government has expanded LPG access to hundreds of millions of people, and this access to LPG, a cleaner fuel, is making a huge difference to the quality of life, especially when indoor air pollution is a major health concern. India is also an exciting market for us, and the growth and potential we see in India is significant.

Positive Near-Term Outlook

Today, VLGC freight market has recovered from the bottom, it seems like the worst is behind us with rates stabilizing at above 40,000 dollars per day. We reiterate our positive market outlook for the second half of 2021. Overall demand for LPG continues to be very strong, especially supported by retail usages and growing petrochemical demand. This is also supported by reduced fleet supplies due to dry docks and shipping inefficiencies. Looking into next year and 2023, we are still optimistic about the market, but newbuild orders will likely put downwards pressure on freight rate, especially for 2023.

Final Thoughts

We continue to benefit from our Product services division, where we have the flexibility to take ownership of cargo and transport these cargoes on our ships. We managed an industry-leading commercial utilization of 97% during a volatile but strong market. We took the lead to retrofit our vessels with pioneering LPG dual-fuel propulsion technology, with four vessels on water serving customers, and another four vessels in the yard. The capex is fully funded and timed to fit the drydocking required for the mandatory five-year special surveys.

BW LPG ended Q1 2021 with an equity book value of approximately NOK77 per share and, for over a year, delivered the highest dividend yield on the Oslo Stock Exchange. The increases to shareholders’ equity in combination with high cash returns, was made possible by a return on equity averaging over 20%. Our share price is trading at 0.8x of equity value, and we continue to strive to generate more shareholder value through focus on returns, transparency, and capturing opportunities. We are a returns-focused VLGC ship owner – one that search for new ways to differentiate ourselves and create value for our shareholders.