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Jinhui Shipping reports weaker third quarter profits

Pictured: a bulldozer digs into a bauxite heap. Bauxite is one of the so-called "minor bulk" commodities. Photo: Shutterstock.

Specialist ship operator Jinhui Shipping of Hong Kong and Oslo has reported third quarter and nine-month losses for the periods July-September 2019 and January-September 2019. The company generates its revenues principally from hiring and chartering out dry bulk ships.

Third quarter 2019

Revenues for the third quarter ending September 30, 2019 were $16.6 million (Jinhui reports in U.S. dollars), which was down 9.4% from the $18.3 million recorded in the corresponding period in 2018. That’s an absolute decline in revenues of $1.7 million. Partially offsetting that downturn by about $263,000 was a 17.4% rise to $1.8 million in “other operational income.”

Jinhui attributed the decline in revenues to a drop in the number of ships that the company owned after it disposed of three vessels in the quarter ending September 30, 2018.

The company took a major hit in its “other operational expenses” account, which surged massively by 186% – from $1.97 million in the third quarter of 2018 to $5.6 million in the third quarter this year. That’s an increase in costs of just under $3.7 million. Jinhui attributed the surge to losses on its investment portfolio.

Another big cost line for Jinhui is “Shipping expenses” and, happily for the company, they fell by about 13.7% to $7.8 million in the third quarter of this year, down by $1.2 million from the $9.0 million recorded in the corresponding period last year. Shipping-related expenses fell as a natural consequence of running a smaller fleet in the third quarter of the year. Meanwhile, the daily running costs per vessel fell slightly, the company added.

“We will continue with our cost reduction effort, striving to maintain a highly competitive cost structure when stacked against other market participants,” Jinhui added in a statement.

Staff costs are the third-largest cost item for Jinhui and they rose by about 14.8% quarter-on-quarter to stand at $2.9 million for the period ending September 30, 2019. As of the end of June this year, the company had 65 full-time employees, having reduced headcount by two as of the end of December 2018.

All of this led to a total comprehensive loss of just under $2.4 million for the third quarter of 2019. That’s a huge reversal of fortune when compared to the third quarter of 2018, when the company made a total comprehensive profit of $6.3 million. That’s a downturn in the bottom line of about $8.7 million.

Nine months to 2019

If 2019’s third quarter numbers are any indication of the near future, then barring unexpected developments, it appears that Jinhui may be heading for a loss this year. The company’s nine months to September 30, 2019 figures show that the company has generated a total comprehensive loss of $1.4 million. That is a huge decline from the same period last year ending September 30, 2018, when the company recorded an $11.6 million profit. Overall, that’s a downturn of just over $13 million.

Casting an eye over the company’s nine-month numbers suggests that the big damage done to Jinhui was in the form of lower revenues. Nine month numbers to the end of September 2019 stood at $43.4 million; a decline of 25.7% from the $58.4 million recorded for the corresponding period ending September 30, 2018. That’s an absolute decrease of about $15 million between the two periods.

As there was, largely, little or minor change in costs on a nine month-to-nine month basis, it appears that the decline in revenues fed through the income statement to the bottom line.

One notable change in costs, however, was a large decrease in the company’s direct shipping expenses. They fell by 17.6% to $23.3 million, an absolute decline in direct expenses of just under $5 million, which went some way to limit the damage done by the revenue decrease.

Dry bulk commentary and outlook

Jinhui reported that the third quarter of 2019 saw a significant strengthening; the demand for minor bulk commodities such as manganese, bauxite and nickel increased. The end of disruptions in the main dry bulk trades, such as issues with grain out of the Mississippi River and iron ore out of Brazil, benefited demand. The company added that a tighter supply because of the IMO 2020 low sulfur regulations, which caused “a number of ships” to go into dry dock, caused a tightening of supply and “may have also supported the strong freight environment.”

Looking forward, the company sees optimistic signs in the international dry bulk shipping industry. “Net new supply of the overall dry bulk fleet for 2019 and 2020 remains to be the lowest since the year 2002,” the company said, adding, “should the underlying long-term demand remain relatively intact, we believe the freight rate will normalize in the positive direction, financial markets will also pick up in sentiment in coming months should the U.S. and China manage to eventually resolve their differences.”

About Jinhui

Jinhui is effectively a dual-listed stock. The holding company, Jinhui Holdings, is listed on the Hong Kong Exchange under the code HKEX: 137. Jinhui Holdings owns 55.69% of Jinhui Shipping and Transportation, the owner-operator of supramax dry bulk shipping, and which is listed on the Oslo Stock Exchange under the code OSE: JIN.

As of the end of November 2019, the company owned 19 ships. This fleet comprised two post-panamax vessels and 17 supramax ships.

A “supramax” generally refers to a vessel with a carrying capacity of about 50,000 to 60,000 deadweight. “Deadweight” is expressed in metric tonnes (one metric tonne equals 2,04.62 pounds or 1.1 U.S. tons). The mean average of the company’s supramax fleet is about 11 years; however, some of the vessels are considerably older than that. For instance, the company’s vessel, “Jin Ming,” was built in 2001.

Two of the company’s supramax fleet are over 15 years old; seven ships are between 11 and 15 years old; and eight vessels are over seven years of age. The company does not have any younger ships.

The two post-panamax vessels (each with a capacity of about 93,000 deadweight) were both built in 2010.

Jinhui does not believe that it is sensible to order new ships.

“The merits to order new ships has been and remain to be low, discouraged by the continued gap between newbuilding and second-hand prices, uncertainty in global economic growth, uncertainty on how future environmental regulations will evolve and impact future marine engine designs, and lastly the cautious stance of maritime industry financiers in asset base financing,” the company said in its third quarter statement.

The company’s approximate cargo carrying capacity was, by the end of September, about 1.14 million deadweight tonnes.

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