Pacific Basin Shipping Limited (2343) Earnings Call Transcript & Summary

Welcome to today's Pacific Basin 2026 Interim Results Conference Call. I am pleased to present Chief Executive Officer, Mr. Martin Fruergaard; and Chief Financial Officer, Mr. Jimmy Ng. [Operator Instructions] Mr. Fruergaard, please begin.

Yes. Thank you very much, and thank you all for your patience, and welcome, and thank you for attending Pacific Basin's 2026 interim results call. We will start by highlighting the key points in the published presentation followed by Q&A. Please turn to Slide 2. Dry bulk freight market strengthened year-to-date, supported by geopolitical disruption and trade inefficiencies, particularly those arising from the conflict in the Arabian Gulf. We were well positioned to benefit from the progressively improving freight market while continuing to outperform the market and deliver strong financial results in the first half of 2026. During the period, we generated an EBITDA of USD 197.8 million, an underlying profit of $94.9 million, and a net profit of USD 105 million. This represented a year-on-year increase of over 300% in net profit, reflecting both strong market conditions and continued commercial outperformance. Our balance sheet remains robust. As of 30th June 2026, we had a net cash of $157.2 million. We had available committed liquidity of $673.6 million, and operating cash flow of $143.5 million. Please turn to Slide 3. We remain committed to delivering value to shareholders through dividends and share buybacks. For first half 2026, the Board declared an interim dividend of HKD 0.155 per share amounting to USD 102.2 million. This is consistent with our revised dividend policy, which allows us to distribute up to 100% of annual net profit, excluding vessel disposal gains where the company is in a net cash position. In addition, we repurchased approximately 9.5 million shares or USD 3.5 million during the first half of 2026 under our share buyback program of up to $40 million for the year. As our shares continue to trade below our fair market value NAV, we will continue to evaluate further buyback opportunities. Including the interim dividend announced and the share buybacks completed year-to-date, Pacific Basin will return approximately USD 106 million to shareholders, equivalent to 103% of our net profit for the period, of course, excluding vessels disposal gains. This reflects our continued commitment to delivering sustainable shareholder return. Please turn to Slide 4. As of end June 2026, we had a total of 254 vessels in operation, comprising 107 owned vessels, 13 long-term chartered, and 134 short-term chartered vessels. In terms of fleet renewal, we reshaped and expanded our newbuilding program during the period, and we now have 10 newbuildings in our order book, comprising 6 Handysize vessels from China and 4 Ultramax vessels from Japan. We also hold the option on 2 dual-fuel Ultramax newbuildings. Including these 2 options, we have in total 12 newbuildings on order with delivery between 2028 and first half of 2029. In addition to our newbuildings and after declaring purchase option on 2 Handysize TCE vessels for delivery in second half 2026, we still hold purchase options on additional 13 long-term chartered vessels, which are declarable between 2026 and 2031. During the period, we completed the sale of 1 Supramax vessel, and we have committed to sell another with delivery in August 2026. We will continue to look for different ways to renew and grow our fleet. We maintain a disciplined approach to cash and debt and capital allocation, balancing fleet investment, financial strength, and returns to shareholders. We take a long-term countercyclical approach in fleet renewal while maintaining our flexibility when considering fleet ownership versus chartering in. This enables us to shift between owned vessels, long-term charter and short-term charters as market conditions evolve and allow us to have the maximum optionality to grow our fleet. Our fleet is a result of many years of disciplined investment, which has created substantial earnings capacity and underlying value. Given the cyclicality of the industry and high asset values, it is important for us to maintain discipline and flexibility in managing our fleet and deployment of our capital. I'll now hand over to Jimmy for an overview of the interim performance and financial review.

Thank you, Martin, and good afternoon to everyone on the call. I will share with you the highlights of our business and financial performance in the first half of 2026. Please turn to Slide 6. The market saw strong but also volatile freight rates in the first half of 2026. Geopolitical disruptions continue to be the key driver of the market throughout the period. In particular, the conflict in the Arabian Gulf, the temporary closure of the Strait of Hormuz, the resulting vessel rerouting, and the fluctuations in bunker prices, all contributed to market uncertainty and increased tonne-mile demand. During the period, market spot rate for Handysize was approximately USD 12,200 per day, which is 40% higher year-on-year, and the rate for Supramax was approximately $14,180 per day, which is 62% higher year-on-year. FFA for the remainder of the year remained strong, which suggests market expectations of a favorable freight market conditions to continue. Please turn to Slide 7. In the first half of 2026, our average daily TCE earnings for Handysize was $14,150, and for Supramax was $16,550. Now these numbers represent a year-on-year increase of 29% and 35%, respectively. Our TCEs outperformed the average spot market rates during the first half by $1,950 per day for Handysize, and $2,370 per day for Supramax. Now this equates to outperformance of 16% for Handysize and 17% for Supramax. Looking forward, for the third quarter of 2026, we have already covered 78% and 82% of our committed vessel days for Handysize and Supramax core fleet at $15,810 and $18,680 per day, respectively. Complementing our core business, our operating activity generated a total daily average margin of $1,060 per day over a total of 12,650 operating days in the first half of 2026. Now this would represent a 49% increase in operating activity margin year-on-year. Please turn to Slide 8. We continued to maintain our cost competitiveness of past years, reflecting disciplined vessel management, effective procurement and continued focus on efficiency. Looking to the composition of vessel cost in the chart on the right-hand side of this page, you would see average daily OpEx for both Handysize and Supramax were broadly stable at around USD 4,790. The increase in depreciation for Supramax vessels was primarily attributable to higher dry docking costs, whereas you will also see the average daily finance costs decreased by 15% to around USD 110. Now this is mainly due to a reduction in outstanding borrowings year-on-year. Long-term chartered vessel daily costs for Handysize remained substantially unchanged, while that for Supramax was 5% higher, mainly due to higher long-term charter hire cost. Please turn to Slide 9. We delivered solid interim results, benefiting from strong execution in an improved freight market. Revenue increased 9% year-on-year to USD 1.1 billion, while TCE earnings rose 20% to over USD 660 million. As mentioned earlier, owned vessel costs remained well-controlled and broadly in line with the previous year. Chartered vessel costs increased by 10%, and that was mainly due to the stronger freight rates during the period for our short-term chartered-in vessels. Operating performance before overheads increased to USD 138 million compared with $62 million in the first half of last year. With the robust performance, underlying profit increased to USD 94.9 million, and profit attributable to shareholders rose to USD 105 million, demonstrating the resilience of our business model in this highly cyclical market. Please turn to Slide 10. We continue to be disciplined with our capital allocation, and our financial position remained very robust with net cash of USD 157.2 million, and available committed liquidity of around USD 674 million as at the end of the period. As of 30th of June, the total net book value of our 107 owned vessels was approximately $1.6 billion, while the estimated market value of our owned vessels, based on independent brokers' estimates was around USD 2.1 billion. Our strong financial position provides a solid foundation for us to pursue a wide range of growth opportunities while retaining the flexibility to capitalize on attractive market opportunities as they arise. Please turn to Slide 11. Our operating cash flow for the period was USD 143 million, inclusive of all long and short-term charter hire payments. We also realized $9.5 million from the sale of 1 Supramax vessel. During the period, with a strong operating cash flow, we repaid certain loans of $88.9 million in total. CapEx amounted to $57.3 million, and that included $19.3 million for 1 Ultramax vessel that was delivered into our fleet in January, along with $20.1 million for dry dockings and other additions. And also in January and April, we paid an initial amount of around $18 million out of a total consideration of $179 million for the 6 contracted conventional fuel Handysize newbuildings. During the first half, we also paid a total of $39.5 million for the 2025 final dividends. Now with that, that takes our closing position as of 30th of June to $207 million with cash in hand. And in addition to that, we have $467 million undrawn facilities, and that takes our available liquidity to a total of $674 million you see on this page. Now all in all, our effective commercial execution and capital management enabled strong cash generation and allow us to have the liquidity for future opportunities. Now with that note, I will now hand you back to Martin for the updates on the market and our strategy.

Yes. Thank you, Jimmy. And please turn to Slide 13. Minor bulk demand remained resilient as ongoing disruptions and inefficiencies in the market led to longer voyage distances. Although minor bulk volumes declined by 6% during the first half, vessels rerouting due to geopolitical conflicts and tensions offset some of the decrease, limiting the decline in tonne-mile demand to just 1%. Growth in bauxite was strong as expanding output, mainly from Guinea, mainly benefiting the larger bulk vessels. Grain volumes increased as a result of favorable harvest in most major exporting regions. Iron ore was supported by Chinese import and stockpiling, and Brazil and Australian mining majors recovered strongly from the weather-related disruptions last year. Coal tonne-mile demand was up, given the closure of the Strait of Hormuz, constraining LNG deliveries to Asia, and a spike in natural gas prices. Please turn to Slide 14. The global dry bulk net fleet growth is forecasted to increase to 3.9%, while the combined global fleet of Handysize and Supramax vessels is forecasted to grow by 4.2% in 2026. The total dry bulk order book currently stands at 14% of the existing fleet, while the combined Handysize and Supramax order book is at 12% of existing fleet. Both remain moderate by historical standards. Recycling remains historically low since 2022, leaving a large pool of potential scrapping candidates, with approximately 14% of Handysize and Supramax fleet capacity now over 20 years old. Please turn to Slide 15. Turning to the situation in the Middle East. The conflict has continued to create volatility in both the commodity and shipping markets. Following a brief reopening, the Strait of Hormuz was closed again with around 1% of the sub-Capesize fleet remaining trapped within the Arabian Gulf. Bunker prices, which rose sharply at the onset of the conflict, have come back down, but continue to be very volatile. The conflict also led to a spike in both natural gas and coal prices. While the increase in coal demand in Europe was somewhat short-lived, we continue to see a widening premium of gas over coal in Asia, prompting some power utilities to increase coal purchases, and providing support for coal trade. For Pacific Basin, we currently do not have any vessels trapped in the Arabian Gulf, and the direct impact on our operations have been limited. Please turn to Slide 16. Looking ahead, although geopolitical disruptions will remain a key influence on the industry, we maintain a positive outlook for the dry bulk market. IMF forecasts global GDP to grow by 3%, and China by 4.6% in 2026, reflecting resilient global economic activity. In terms of market dynamics, although supply growth is outpacing demand growth, freight markets continue to be supported by disruption-related inefficiencies, including high bunker prices, fuel supply constraints, longer voyage distance, adverse weather, and congestion, and so on. Overall, we expect dry bulk market conditions to remain resilient. At the same time, we remain mindful of key uncertainties, including geopolitical developments, the pace of fleet deliveries, and, of course, the weather-related disruptions. Against this backdrop, our strategic priorities reflect our agility in operations and commitment to shareholder return. We will continue to grow and renew our fleet in a disciplined countercyclical manner, advance our fuel transition strategy, leverage digital and AI capabilities to enhance commercial and operational performance, strengthen our cost competitiveness, and strive to enhance our performance and shareholder return. Please turn to Slide 17. Our consistent outperformance is underpinned by the integrated platform we have built over many years. Our global network, long-standing customer relationships, and deep market knowledge enable us to secure better employment opportunities for our fleet, and respond effectively to constantly evolving market conditions. Our extensive in-house capabilities, deep in-house fleet management expertise, and relentless focus on efficiency and safety enable us to deliver reliable transportation service to customers worldwide, while maintaining a competitive cost base. Disciplined capital management is another important pillar of our resilience. We take a long-term countercyclical approach to investing in, renewing and growing our fleet. By maintaining financial flexibility and asset optionality, we can adapt to and manage changing market conditions. Altogether, these strengths form the foundation of our outperformance, enabling us to consistently outperform the freight market, generate attractive and sustainable returns through the cycle, and create long-term value to our shareholders. With that, I conclude our 2026 interim result presentation, and I hand the call back to the operator for the Q&A session. Thank you.

[Operator Instructions] Our first question is from Nathan Gee.

Congrats on the strong results. Maybe a few questions from me. Firstly, on Hormuz, are you able to sort of size the boost to dry bulk markets from Hormuz? And so I guess, what's the net impact if tensions ease? Secondly, just in terms of forward cover, it seems like you have about 80% of 3Q covered this year. I think this time last year, for 3Q, you had about 95% covered. So is this just a deliberate strategy given your market view? And then thirdly, potentially within El Nino, can you be talking about the potential impacts from the Panama Canal dry bulk markets, and just remind us what happened last time?

Yes. We'll try first the impact of the Strait of Hormuz. I have to say it's actually amazing that the market has been so resilient and so strong, when you look at, actually, the 6% cargo volume we lost in the beginning of the conflict. But even then the market has actually been strong. And that's, of course, a clear indicator that we lost a lot of cargo, mainly fertilizers, and cement clinkers, and aggregates. But at the same time, of course, all these commodities had to be supplied from longer -- over longer distances. And of course, that has been very helpful for us. So when we say volumes are down 6%, and I think we say the tonne-mile is down 1%. And then we have an increase in market, that can seem a little bit confusing. But there, of course, you have to remember that 2% of the smaller ships were actually trapped in the Arabian Gulf. And at the same time, you had lots of disruption around where we had to go to other places, we are creating congestion, longer tonne-mile, higher bunker prices. So you have one of those scenarios, once again, where we see all this disruption happening in our market, that is very helpful. I think actually, if it opens up again, yes, there is still about 1% of the smallest, the Capesize fleet in the Arabian Gulf. So it opens up, of course, they will start trading again. I think for the bulk market, you could also say that it would actually bring a lot of tonnes back to the market, maybe tonnes that the world is still missing because you actually see now that the cargo volumes are coming up again, but it's sourced from somewhere else. I think if the Arabian Gulf opens up again, I think there is a pent-up demand somewhere that still has to be covered. So it's not necessarily a bad thing if it opens up for the dry cargo space, but let's see. The forward cover, you're absolutely right. I think what's really amazing -- what I think we've done really well this year is that we have actually positioned ourselves very optimal this time. It is actually quite difficult to outperform the market in an increasing market. And I think still our outperformance is -- it's a quite big outperformance, and we've done that even though the indices have continued to go up during the year. And that is, of course, also done by being less aggressive on taking contract cargo, when we entered the year, and also during the year. So we do have, I think, about 10%, 15% less cover. I would actually say the cover we didn't have is actually quite well-paying. And it's still -- even though it is quite high numbers, it is still -- especially for Handysize, there's a lot of backhaul voyages included in it. So I actually think we're in a super good position on that part. And of course, when you look at the FFAs, and the outlook is actually quite good for the rest of the year. The final one is El Nino. That is a good one. It has so many impacts on it, that it's probably hard to where to start and where to end. First of all, the Panama Canal, it's a combination also that there's a lot of tankers and gas ships going to Asia with hydrocarbons from the U.S. So that is actually pushing out the bulk carriers. But also there, you see now a reduction in the allowed draft of the ships, and that is, of course, due to less water in the lakes that actually feeds the Panama Canal. That's probably the situation we saw some years back, a situation that probably will continue. Of course, we see the weather impacts in Europe at the moment with the high temperature. And what does that do? Well, the water level in the rivers are historically low. That actually means that the transport of the commodities in and out of the ports are limited. But it also means that maybe nuclear power plants are running a little bit less because of lack of water. It also means that the hydropower will also be less. And the replacement for that is, of course, coal and other things. And it links again into Ukraine, where we see much more shooting on ships and ports between Russia and Ukraine. That means, how will Ukraine and Russia get the grains out? It's definitely not out of Black Sea, because no ships at the moment, or very limited ships, wish to go there. So what's happening now is that normally, they would have done it through the rivers. They don't now. That is actually not possible right now because of the water level. 7% less waterfall in the monsoon in India, that will have an impact on the hydro. So I can continue and continue and continue. I think the harvest in Europe is very poor, quality of it is very poor. So Nathan, I can continue, continue. It remains to be seen of all these things, but El Nino will have a major impact on the trade. That might be also some negative for us. But overall, again, it's just disrupting the market.

Our next question is from Deepak Murali Krishna.

Congratulations on a strong quarter. In a rising market, you've outperformed. So definitely kudos to your team. My questions are around the cover for the second half, a follow-up. We see that, so far in 3Q, the spot rates are trending sequentially higher. So is it fair to assume that we could see a seasonally stronger second half versus first half given that you've already covered significantly in the third quarter already and there's more to come in the fourth quarter? That would be my first question.

Yes. I think that is definitely correct. If you look -- we don't give forecast, of course, for the market. But I think what's important to remember is that, for first half, it was a progressive increase in the freight rates to where we are now. And again, if you look at the indices, you can see they are even higher than our cover is on that part. And indices, of course, do not have an outperformance included. And again, as I said earlier, the cover we have, there is actually a little bit of backhaul included in that part of it. So yes, it is -- I think there's a good support in the market actually going forward at the moment. There's nothing indicating -- nothing that we can see that indicating rates will go down.

Okay. And then with respect to the coal demand, Clarksons and several other industry commentators and your peers who have reported have mentioned that coal could be a swing factor in the second half given the disruptions to the gas supply and also given the hydropower deficit potentially because of the El Nino effect. Have you already started seeing an uptick in coal cargoes, which you handle? Any color on that, whether it is just expectation, or is it something which is translating into reality? That will be my second question.

I think we -- not -- maybe less on our ships. I think we are actually quite busy with other things than the coal. But of course, our focus is probably somewhere else at the moment. But I think on the Panamax, as you see that, you also see that the Pacific market is actually quite strong also on the Capesize and Panamax ships. So I think that they are benefiting mainly from this business. We see the numbers, and we can see there is an increase. It's also both India and China is, of course, using coal to gas part of it. And as you say, the gas prices are high, availability is low. It has to be coal as a replacement. And again, the temperature is very high. The weather is brutal. And yes, the electricity requirements are up. So it will probably be coal doing that.

And maybe as a follow-up, given the different diverse cargo which you handle, if you could help us understand during the first half and so far, right, which are the cargoes which you are seeing a greater momentum? Or is the outperformance mainly driven by supply disruptions rather than the demand growth as such?

Well, I think actually, when you look at -- if you look at our numbers, I think on the attachment when you have time to do that, you can actually see that our total volume moved in first half is somewhat down compared to last year. Of course, we have a little bit less ships all in all. But reality is, this is a reflection of that we are sailing longer, and there's more disruption in the trade. So I think that is also showing -- our volume moves also indicate a little bit what's happening in the market. It is becoming a little bit more cumbersome to move the cargoes, and it's longer voyages, and it takes more time to do it. But otherwise, I think the trading for us is we did have one time charter ship in the Arabian Gulf, which we got out without any cost to us on that part of it. So our ships actually been quite busy moving around, and we are busy with the usual stuff. Maybe we do a little bit more breakbulk, a little bit more steel cargoes and others, which actually also is part of the outperformance of our ships that we can combine doing parceling and other things that is also quite helpful in our outperformance of the market.

Okay. And finally, on the fleet expansion or fleet momentum, right? Secondhand prices are high, at the highest levels since 2010; perhaps newbuild prices are not cheaper either. In this scenario, will you be more of a seller of older vessels? Or would you look to acquire any vessels given that this could be a structural deficit in the fleet expansion for the entire market? And if you could also help us understand, given the options which you have, I think on slide -- I'm not sure which slide this is -- you mentioned something about 2 already declared and 3 more to be delivered. So net-net, how many more options do you have left?

Good question. We always -- we spend a lot of time discussing that every time. But anyway, so our view on the -- first of all, our view on the newbuilding market is, yes, prices are high. I think the yards have good margins on the ships. But they also have -- they are fully used until '29-'30. And even the new capacity coming in has been a lot of orders of cruise ships, VLCCs, Newcastlemaxes, and very large tankers, and car carriers. So the yards are actually quite busy until '29 and 2030. But it's true prices are high. So what we have done in our growth is that, of course, we have done some newbuildings when we thought we had the right timing to do it. There's also a limited amount of yards actually willing to build our smaller ships. So it becomes a little bit specialized when you want to have especially Handysizes, but also Ultramaxes. But we have placed some orders, and I think we've got the timing somewhat okay on those orders. And then on top of that, we have taken the long-term charter deals with purchase options. And what we have is we have -- we actually have 16 long-term chartered ships, of which [indiscernible]. We have...

13 long-term charter ships.

13 long-term chartered ships, of which we have declared purchase option on 2 of them. Two ships will be delivered end of this year. On top of that, we have 3 more ships coming: 1 Ultra and 2 Handysizes. One is coming this year, and 2 is coming next year. They also come with purchase options on it. So that actually brings our purchase options up to 13 ships on that part of it. So if you take the time charter deals we have with purchase options, 13 ships, we take our newbuildings with 10 ships, plus the 2 options we also have on newbuildings, combined, we actually have 25 ships that we can buy -- that we have to buy, but we only committed to 10 of them.

[Indiscernible] '29, right? Between '28 and '29.