PACIFIC BASIN(PCFBY) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company is initiating its first-ever share buyback program with an allocation of up to $40 million, scheduled to run from April 25 to December 31, 2024, aimed at enhancing shareholder value [4][5][6] - The average daily TCE earnings for Handysize and Supramax vessels in Q1 2024 were $11,050 and $13,610, respectively, representing a year-on-year decrease of 18% for Handysize and no change for Supramax [15] - The company continues to generate healthy cash flows and maintains a distribution policy to pay out at least 50% of annual net profits in dividends [7] Business Line Data and Key Metrics Changes - Handysize and Supramax market freight rates averaged $10,510 and $12,310 per day in Q1 2024, reflecting increases of 26% and 27% compared to the same period in 2023 [8] - The company covered 84% and 96% of its Core committed vessel days for Q2 2024 at rates of $12,219 and $14,610 for Handysize and Supramax, respectively [16] - The Core business's operating activity generated a margin of $510 per day over 6,660 operating days in Q1 2024, a decrease of 53% year-on-year [22] Market Data and Key Metrics Changes - Global minor bulk loadings increased by approximately 3% in Q1 2024, driven by higher loadings of bauxite and salt, while other categories like cement and ores saw declines [9] - Global iron ore loadings rose by 2%, with Brazil experiencing a record first quarter, up 15% year-on-year [10] - Global coal loadings decreased by 1% due to reduced loadings from Russia and Indonesia, while China's demand for imported coal remained strong [12] Company Strategy and Development Direction - The company is expanding its fleet with newbuildings that have an earning capacity approximately 20% higher than the current average fleet [26] - The company is cautious about investing in newbuildings due to historically high prices but is considering contracting low-emission vessels [27][75] - The company aims to gradually divest its least efficient ships in response to stricter decarbonization regulations [29] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the long-term prospects of dry bulk shipping, supported by positive demand for commodities and favorable supply-side fundamentals [32] - The ongoing disruptions in the Red Sea and Panama Canal are expected to impact supply and support freight rates [24] - Management noted that the market is currently in contango, indicating positive signs for future earnings [80] Other Important Information - The company plans to evaluate the effectiveness of the share buyback program by the end of the year [48] - The company has a cash breakeven level of $5,960 per day for Handysize and $6,120 for Supramax vessels [19] - The company currently operates approximately 302 vessels, including short-term chartered vessels [30] Q&A Session Summary Question: Can you elaborate on the premium that Pacific Basin manages to deliver over the market rate? - Management acknowledged that the premium has decreased but emphasized that they are still outperforming the market, attributing fluctuations to market conditions and disruptions [35][36] Question: What percentage of capacity has been absorbed due to congestion in Panama and the Red Sea? - Management indicated that disruptions have an impact, estimating a 2% effect on the supply side [45] Question: What is the CapEx for 2024 and the rationale behind the buyback? - Management outlined a total CapEx of over $200 million, including $40 million for share buybacks, emphasizing that the buyback is a better investment than purchasing assets at current prices [49][51] Question: How does the higher cover for the second quarter reconcile with the view of the market going up? - Management explained that the cover was established when there were concerns about the market, and they are comfortable with the current cover levels [62][68] Question: Is there a change in strategy regarding newbuilds? - Management clarified that they will only consider newbuilds if they are zero or low-emission vessels, maintaining a cautious approach [74][75] Question: Was the strong performance in Q1 due to demand or disruptions? - Management stated that the strong performance was driven by demand, with disruptions in the Red Sea and Panama Canal providing additional support [82]