Another Record Quarter
2023 has proven surprisingly robust for the VLGC market, marking a historic high. In the third quarter alone, we witnessed a remarkable 30% increase across all rate indexes. This was largely driven by sustained high import volumes to China, despite rising LPG prices and the widening arbitrage between the US and Far East has also encouraged active trading between these regions. Our shipping business delivered the highest historical daily TCE on record with US$63,100 per available day, with a commercial utilization of 99%. We report a net profit after tax of USD 122 million, equivalent to earnings per share of USD 0.85. This is after a downward IFRS adjustment of US$ 24 million. For the third quarter, we are also pleased to announce a dividend of US$ 0.80 per share, which translates into an annualized yield of 22%.
Market Performance
We have observed significant impact on spot rates due to operational disruptions from Panama Canal transit limitations, which may cause ~50% increase in sailing days for the fleet trading between the US and the East, subsequently pushing up rates. However, the inefficiencies leading to high rates also translate into increased costs for owners and traders – a burden not easily passed on.
Our fleet composition remains robust with 45 VLGCs despite active sales. We finalized the sale of another ship this quarter at record levels. In addition, we warmly welcome Sinogas to our pool, who will contribute their first VLGC in 4Q 2023. Their addition underscores the benefits of scale in this volatile market. For the fourth quarter, around 79% of our available days are fixed at an average of US$ 73,000 per day. Our spot rate currently stands at US$ 104,000 per day, and we expect strong final earnings for Q4, reflecting the exceptionally hot spot market. For 2024, 19% of our fleet is already fixed under TC, with an average daily rate of US$ 41,300. We have balanced our TC in and out commitments for 2024, securing a US$ 23 million profit. Additionally, 13% of our days are hedged with derivatives at an average of US$ 59,000 per day.
Key financials
We reported a net leverage ratio of 22% in Q3. This was due to a heightened working capital requirement from increased Product Services activities. We have also revised our dividend policy – the policy remains based on our shipping performance and the NPAT generated by the shipping segment, with adjustments for Product Services performance, cash and capital requirements. For 3Q 2023, 100% dividend payout was sourced from our shipping earnings, plus an upward adjustment of US$ 0.02.
On a consolidated basis, we ended the quarter with close to half a billion in liquidity, including US$ 190 million of available cash, after netting of USD 110 million held in broker margin accounts and US$ 296 million in undrawn revolving credit facilities. As of end-September, ship financing debt outstanding was reduced to US$ 326 million. This follows a US$ 110 million repayment of a revolving credit facility after conversion from term loan. These initiatives align with our strategy to reduce debt costs and maintain funding flexibility.
On the trade financing side, US$ 172 million or 26% of our current US$ 660 million lines have been used, with US$ 86 million related to advances drawn and another US$ 86 million in Letter of Credit issuances. This leaves a healthy headroom for growth. We remain on track to expand our lending group further and upsize our trade financing lines to US$ 800 million. For perspective, these limits would allow us to trade up to eight million tons of physical LPG per annum from the US to the Far East under current market conditions.
Product Services
In 2023, our Trading team handled approximately seven million tonnes of physical LPG and about 20 million tonnes of derivatives. We anticipate a 30% increase in volumes in 2024. We have expanded into the mid-size space, securing two TC contracts which will allow us to tap into new markets beyond the VLGC segment. The Value at Risk (VAR) is relatively stable, and the portfolio is well-balanced between cargoes, shipping, and derivatives from a trading book perspective.
We continue to see good collaboration and synergy between Product Services and our shipping business through improved information flow, optionality and enlarged footprint. While focusing on profit, we are also progressing with plans to expand our physical presence in key markets as we aim to broaden the platform and trading portfolio.
Outlook
Against a backdrop of high volatility, we reiterate our positive market outlook for 2023 and 2024. Our positive market outlook is based on several factors, viz.:
- Energy prices will continue to drive strong US exports and steady export growth from the Middle East;
- New PDH plants coming on stream in China which will support the demand side of the market;
- Continued growth in the residential market in fast-developing economies such as India;
- Slowdown of VLGC newbuilding delivery post- 2024, and shipyards being booked until the first half of 2027;
- Disruptions in the Panama Canal absorb capacity from the global VLGC fleet
Under the current market conditions, the VLGC sector is generating a dividend potential which is unprecedented for the segment. We are also pleased to have returned more than 70% of our earnings in dividends since the IPO 10 years ago.
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Keywords: earnings, presentation, financial performance, maritime, shipping, forward-looking, LPG, VLGC, LPG Trading
