BW LPG (BWLP) Q1 2025 Earnings Call Transcript

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DATE

Tuesday, May 20, 2025 at 8 a.m. ET

CALL PARTICIPANTS

Chief Executive Officer — Kristian Sorensen

Chief Financial Officer — Samantha Xu

Head of Investor Relations — Aline Endlicker

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TAKEAWAYS

Net Profit Attributable to Equity Holders— $46 million, or $0.30 per share, with an annualized earnings yield of 11% based on the share price at the end of March.

TCE Performance— $39,800 per available day and $38,800 per calendar day, both above prior guidance of $36,000 per day.

Dividend— $0.28 per share declared, representing a 75% payout ratio of shipping NPAT and a 10% annualized dividend yield.

Product Services Results— Realized gain of $33 million, but a net loss after tax of $12.5 million due to a $51 million negative mark-to-market adjustment, partially offset by a $15 million positive paper position change.

Fleet Utilization— Over 96% after deducting technical and waiting time.

Time Charter Portfolio— 41% of total shipping exposure, with 30% in fixed-rate time charters, supporting earnings during spot market softness.

Q2 Forward Coverage— 79% of available fleet days fixed at approximately $35,000 per day; 30% of portfolio at fixed rates of $45,000 and $50,600 per day through charters and FFAs.

Shipping Profitability (2025 Est.)— Time Charter fleet expected to generate $24 million profit, with the remaining fixed portfolio to produce $137 million.

Net Leverage— Reduced to 31% in Q1 2025 from 32% at year-end December 2024, driven by a $30 million release of restricted cash and a $45 million reduction in total borrowings.

Liquidity Position— $633 million as of Q1 2025, consisting of $262 million cash and $371 million undrawn revolver facilities.

Financing Developments— Completed $65 million Japanese JOLCO in Q1 2025 and nearly finalized a $380 million bank refinancing, which will replace the BW Group shareholder loan and is not expected to raise leverage.

Operating Cash Breakeven Estimates— Own fleet at $19,300 per day for 2025; total fleet (including time charter-in vessels) at $21,700; all-in cash breakeven at $25,000, with continued elevation from last year due to dry dockings and higher financing costs.

Product Services Book Equity & VAR— $53 million book equity for Q1 2025, not including $8 million in unrealized physical shipping positions; average Q1 2025 value-at-risk (VAR) at $5 million with a 95% confidence level.

Share Buyback Program— Reactivated following a share price drop; actual buybacks limited to $2.7 million due to regulatory limits, rapid price recovery, and blackout period entry; new buyback authorization remains, but dividends are affirmed as the main shareholder return strategy.

Indian Business Developments— Sold BW Chinook and BW Pompero to bolster the Indian fleet; discontinued the proposed Mumbai LPG terminal project, citing “increased geopolitical risk.”

LPG Market Dynamics— Spot vessel rates surged to $50,000 per day ex-US and $60,000 per day ex-Middle East after tariff-induced volatility; US LPG volumes redirected to other Asian destinations as Chinese tariffs halted the US-China trade route.

Fleet Metrics and Market Outlook— Global VLGC order book at 109 ships as of Q1 2025, with 50 Chinese-built vessels in the 406-vessel active fleet and 26 on order from China; higher dry-docking activity expected to absorb capacity and support freight rates.

SG&A Increase— Attributed mainly to accrued bonuses following stronger trading performance and year-on-year improvements for 2023, 2024, and Q1 2025.

SUMMARY

BW LPG Limited (NYSE:BWLP) reported first-quarter profitability above guidance, driven by time charter portfolio performance and disciplined cost management. The company enhanced its balance sheet through new financing, maintained substantial liquidity, and reduced net leverage. Management prioritized dividends as the main shareholder return, with share buybacks limited by regulatory and market constraints. Strategic actions included expanding the Indian fleet, exiting the Mumbai LPG terminal project due to geopolitical risk, and adapting to dynamic LPG market shifts that redirected US exports and supported freight rate recovery.

CEO Sorensen said, “the board of directors has declared dividends of $0.28 per share, which is equivalent to 75% of our shipping NPATs and translates to an annualized dividend yield of 10%.”

CFO Xu reported, “we have fixed 79% of the available fleet days at about $35,000 per day” for Q2 2025, and detailed “a net leverage ratio of 31%, a slight decrease from 32% reported at the end of December 2024.”

Product Services reported “a negative change in mark-to-market valuation on our cargo of $51 million, which was offset by a positive paper position change of $15 million,” resulting in a “net loss after tax of $12.5 million.”

CEO Sorensen said discontinuing the Mumbai LPG terminal reflected a strategic pivot “given the increased geopolitical risk, which our freight and trading activities are exposed to.”

CEO Sorensen noted that US-China trade friction sharply drove rates down, but market rerouting to other Asian countries and India allowed “freight rates to rebound”—with current spot rates at $50,000 per day out of the US and $60,000 per day from the Middle East as of May 2025.

INDUSTRY GLOSSARY

JOLCO: Japanese Operating Lease with Call Option, a cross-border lease financing structure commonly used for ships and aircraft.

NPAT: Net Profit After Tax, a company’s total earnings after all expenses and taxes.

VLGC: Very Large Gas Carrier, a ship class used to transport large quantities of liquefied petroleum gas.

FFA: Forward Freight Agreement, a financial contract to hedge or speculate on future freight rates.

Mont Belvieu: The primary pricing hub for US-produced LPG, referenced for international trade pricing.

VAR: Value-at-Risk, a statistical measure estimating the potential loss in value of a trading portfolio at a given confidence interval over a set time frame.

ARP: Arbitrage Price, the price differential between two markets, impacting trade flows.

Full Conference Call Transcript

Kristian Sorensen: Thank you, Aline, and hello, everyone. Thank you for taking the time to be with us today as we review our first quarter 2025 financial results and recent developments. Let's turn to slide four, please. For Q1, we reported net income of $39,800 per available day, and $38,800 per calendar day. This is above our guidance of $36,000 per day, thanks to the performance of our time charter portfolio. After minority interests, the Q1 profit was $46 million, equivalent to $0.30 per share, and the board of directors has declared dividends of $0.28 per share, which is equivalent to 75% of our shipping NPATs and translates to an annualized dividend yield of 10%.

We have been quite busy on the financing side and have concluded the Japanese JOLCOs for one vessel, the BW Kyoto, while we are at the final stages of refinancing a $380 million bank loan, where we have received very strong interest from the banking group. As per our trading update back in April, BW Product Services realized positions showed a solid $33 million in profit in Q1, but due to a downward adjustment of the valuation of the unrealized positions, they reported a gross loss of $3.6 million and a net loss after tax of $12.5 million for the first quarter.

We would like again to emphasize that it is realized positions which generate the dividend capacity and that downward adjustments to the valuation of the unrealized positions do not necessarily mean the positions are loss-making when they are realized in the future.

Into the second quarter, we reactivated the share buyback program after the share price dropped in the wake of the US. We are happy to see that the share price has improved significantly since then, as solid fundamentals in the LPG market played out. About that later. For our activities in India, two major events should be noted. The first is the sale of the 2015 built BW Chinook and BW Pompero to strengthen our Indian fleet. This is a strong sign of our belief in the Indian LPG market. Secondly, we have made the strategic decision to discontinue our involvement in the LPG import terminal outside Mumbai.

This was a very difficult decision to make, given the increased geopolitical risk, which our freight and trading activities are exposed to. We believe it is in our shareholders' best interests to focus our attention and resources on the key value drivers for our company. Although this journey did not end as intended for us, I would like to thank our partners, Confidence Petroleum and Ganesh Spencer Plus, for the cooperation on this project. I wish them the best of luck going forward. Okay. Let's take a look at the market. Slide five. Q1 was relatively uneventful compared to what unfolded as we moved into the second quarter.

As Chinese retaliatory tariffs on US-sourced goods and commodities were introduced, the US-China equity trade came to a halt, and freight rates stumbled. However, the solid fundamentals of the market prevailed, and with high US energy production, the export levels were unabated as US LPG volumes were shifted to other Asian import markets outside China. The US terminal operators are moving forward with their expansion plans, which will facilitate further export growth. While the OPEC cutback reversals are expected to increase the Middle Eastern exports, with more export projects also on the horizon later in the decade.

We are closely monitoring the pandemic traffic, and there are indications that more ships are sailing around South Africa on their way from the US to alternative markets in India and Southeast Asia, driving up ton-miles as the sailing distances increase. Another event which the whole industry closely monitored was the proposed sharp hike in the US port charges for Chinese-built and/or Chinese-controlled vessels. Ships arriving in ballast are exempted, and the BW LPG Limited fleet is set to trade as normal, but we are awaiting news from the second public hearing, which is taking place this week if there are any changes proposed or made.

For the new building market, we will take a closer look at the order book, which is now counting 109 ships later in the presentation. The spot market has taken a sharp upturn as the exports were back on track from the US and the Middle East. We are currently fixing vessels around the $50,000 per day mark from the US, while the Middle East is trading around the $60,000 per day range. Next slide, please. On this slide, we are trying to show the market turmoil we went through when the Chinese introduced their import tariffs on US-sourced LPGs. Overnight, it became uneconomical to ship US cargoes to China, its largest export market.

And prices for delivered LPG in Asia came off quickly. There were talks about US cargoes being canceled and withdrawn from exports. In the first week, the spot rates went from $40,000 per day to $10,000 per day in three days. It was a swift and brutal reaction, but it took out the downside, and the market could quickly thereafter start repricing itself. Non-Chinese players quickly moved in to capitalize on the situation. After a couple of days, the market bounced back with increasing freight rates reflecting the high activity level. A very strong force in the LPG market is the fact that it is a supply-driven byproduct from crude oil and natural gas production.

And LPG, which is not consumed domestically in the US, must eventually be priced to clear in the international markets. We were, however, somewhat surprised to see that the US prices remained quite resilient while the increase of the landed price in the Far East supported freight rates to increase. While the US Mont Belvieu prices remained stable at least so far. The 90-day tariff relief announcement led to another upswing in the freight market as more players tried to secure shipments. Over the last two weeks, the ARP has narrowed, and there is currently kind of a standoff between Mont Belvieu prices and the Far East prices.

While shipping remains tight with more ships diverting to a very active Middle East market. Next slide, please. The LPG market is extremely dynamic and adapts very quickly to market conditions. And as you can see on this slide, new trades emerged within days and weeks after the Chinese import tariffs were introduced. Chinese import demand was met by cargo swapping and reshuffling of Middle Eastern and other non-US LPG cargoes. US cargoes increasingly changed destinations to Japan, Korea, and Southeast Asia. India, being the second-largest importer of LPG, played a key role in the new trade pattern which emerged, and we saw the first US cargoes shipped all the way from the US to India.

From a shipping perspective, sailing distances increased somewhat, and the more inefficient LPG supply chain supported freight rates to rebound. The fundamentals of the LPG market remain robust, and the US production of LPG is rising unabated, backed by oil prices in the low $60 per barrel. We do, however, recognize that the lower oil price may lead to reduced production, although more US LPG will come from natural gas production going forward. Terminal expansion plans are going ahead as previously announced. And it's in our view a positive sign for shipping demand in the future. Let's take a look at the order book before Samantha walks you through the financials.

The total order book is now at 109 ships, including vessels scheduled for delivery in 2029. There is attention on the Chinese-built part of the 406-strong sailing fleet, and currently, we count 50 of these built in China, while 26 units are on order from Chinese yards. Dry dockings continue to absorb capacity from the global VLGC fleet. We are heading into a higher pace of dry dockings in the months ahead. This should be positive for the rate environment. And then I leave the floor to you, Samantha.

Samantha Xu: Thank you, Kristian, and hello, everyone. Please follow me to slide twelve and have a closer look at our shipping performance. For this quarter, we are very pleased to report achieving TCE per calendar day of $38,800, or per available day, $39,800. Over a 96% fleet utilization after deducting technical and waiting time. A healthy result achieved in a volatile market was a strong statement to our commercial strategy. Consistently taking on fixed-rate time charter and FFA to cover a stronger market and to provide support when spot markets are under pressure. In Q1, the time charter portfolio was 41% of the total shipping exposure, among which 30% is fixed-rate time charter, supporting the earnings when the spot market softened.

For Q2 2025, we have fixed 79% of the available fleet days at about $35,000 per day. We have secured a total of 30% of our portfolio with fixed rates, time charters, and FFA at $45,000 per day and $50,600 per day, respectively. For 2025, our Time Charter fleet is estimated to generate a profit of around $24 million over our time charter in fleet. And on top of that, the balance of our fixed time charter portfolio is estimated to generate $137 million for 2025. Next slide, please. On the product services side, the business posted a realized gain of $33 million for Q1. A very strong quarter delivered.

On the unrealized open positions, we reported a negative change in mark-to-market valuation on our cargo of $51 million, which was offset by a positive paper position change of $15 million. This brought product services' trading result to a gross loss of $4 million for the quarter. After accounting for expenses, which mainly comprise of general and administrative expenses accruals, product services reported a net loss after tax of $12.5 million. As we mentioned in the previous quarters, the large sum of mark-to-market valuation change is due to the gradual phasing in of our multiple-year term contract, which reflects value adjustments in time of a volatile market.

While the value is significant, it reflects the delta between the balance sheet dates, and we will continue to see fluctuation before the positions are realized. As of the end of Q1 2025, product services' book equity position stands at $53 million. This was after a dividend of $65 million paid out to shareholders as reported in our Q4 earnings call. As usual, we would like to highlight that the reported book equity does not include the unrealized physical shipping position of $8 million, which was based on our internal valuation.

In Q1, our average value at risk (VAR) was $5 million, reflecting a well-balanced trading book including cargos, shipping, and derivatives, including also the impact of the increased term contract volume as mentioned earlier. Going on, I'll finish your highlights. We report a net profit after tax of $67 million, including a profit of $48 million from BW LPG India, and a $12.5 million loss from product services. Profit attributable to equity holders of the company was $46 million for the quarter, which translates to an earnings per share of $0.30 and an annualized earnings yield of 11% when compared against our share price at the end of March.

We reported a net leverage ratio of 31% in Q1, a slight decrease from 32% reported at the end of December, due to the release of a restricted cash held in brokerage accounts of $30 million, and a reduction of total borrowing of $45 million. For Q1, the board declared a dividend of $0.28 per share, which translates to a 75% payout for our shipping profits. For the period end, our balance sheet reported a shareholder's equity of $1.9 billion, the annualized return on equity and on capital employed for Q1 were 14% and 10%, respectively. Our Q1 OPEX was $8,400 per day, largely in line with previous periods.

For 2025, we estimate our own fleet's operating cash breakeven to be $19,300, and the total fleet operating cash breakeven, which includes the time charter in vessels, to be $21,700. All-in cash breakeven is estimated to be $25,000, some improvement from our previous estimate, still elevated compared to last year driven by 2025's dry dock program and higher financing costs. Next slide, please. On the liquidity side, as of the end of Q1, we continue to maintain an ample position of $633 million, supported by $262 million in cash, and $371 million in undrawn revolver facilities. This position was attributed to our meticulous financing planning to replenish liquidity as growth continues.

Our recently concluded JOLCO financing contributed $65 million while we took delivery of a BW Kisuku. The repayment profile is sustainable with major repayment only kicking in after 2029. We are also in the process of concluding a $380 million bank financing on competitive terms. Once it's done, it will replace the shareholder loan from BW Group, which was arranged during the fleet acquisition, and further enhance our liquidity. This financing is not expected to increase the current leverage ratio. On the product services side, trade finance utilization stood at a moderate level, $224 million, or 28% of our available credit line, giving very efficient room for future trading needs.

With that, I would like to conclude my updates and back to you, Aline.

Aline Endlicker: Thank you, Samantha, and thank you, Kristian. We would now like to open the call for your questions. Please, you can type your questions into the Q&A channel. You can also click the raise hand button to ask your question verbally. Please note that participants have been automatically muted, so please press unmute before speaking. We will start with the verbal questions first before moving on to the chat. So please, if you have a question, you might just raise your hands. And I see a question here from Kushal. If you could please unmute yourself.

Kushal: Yeah. Hi. Can you hear me?

Kristian Sorensen: Yes.

Kushal: Thank you. Thanks for the opportunity. Just wanted to understand a broader strategy on the India LPG terminaling business. I just noted that you are moving out of the contract with Ganesh Spencer Plus as well as Confidence Petroleum, where we wanted to set up this LPG port terminal. Why was the decision taken specifically given the fact that now volumes are moving from the US to India directly, the LPG volume which I am referring to? That is my first question. Thank you.

Kristian Sorensen: Thank you. The terminal investment for BW LPG Limited was estimated somewhere between $10 and $15 million, which is, compared to the balance sheet, a relatively modest investment for our company. And like in any other greenfield infrastructure projects, there is a certain complexity, of course, when you construct a terminal. And given the challenging market environment and geopolitical turmoil, the management has had to make the decision to focus on the core value drivers of our company, which are shipping and trading. So it is not an easy decision we have made, but it is simply because of the circumstances where we have to focus our attention and resources and time on our shipping and trading activities.

Kushal: Thank you. That is all for my side.

Aline Endlicker: Thank you. Anyone else who would like to raise his or her hand? Yes. I have next up John Dixon. If you might unmute yourself, please.

John Dixon: Good morning, Kristian. Good morning, Samantha. Can you all hear me okay?

Aline Endlicker: We can. Yes.

John Dixon: Kristian, I wanted to ask a question about the share buyback. I know you said that it was concluded. Here in the United States market, a very simple announcement by the president can have a huge impact on the stock market and on the stock prices as we have seen. Are you guys still open to continuing to buy back shares should they fall to a lower level as they did prior?

Kristian Sorensen: Thanks, John. The main way we return value to our shareholders is through the dividends. That is something which is not going to change. But if you look at the annual general meeting last week, we renewed the share buyback program, which is to be reactivated when the directors find it timely. So I guess the answer to your question is that, yes, we do have a new share buyback program in place. But our main way of returning value to our shareholders will remain the dividend payouts.

John Dixon: Sounds good, Kristian. Thank you.

Aline Endlicker: Thank you. We have also a question by Climent, if I pronounce your name correctly.

Climent Molins: Yeah. Yeah. Yeah. That was correct. Hi. Good afternoon, and thank you for taking my question. I wanted to start by asking about your time charter portfolio. Do you have extension options on your existing time charter contracts? And if so, are those included on slide twenty-one? And secondly, when you think about your time charter portfolio, would you prefer to increase the number of TCMs or routes given the current market conditions?

Kristian Sorensen: Thank you, Climent. When it comes to options on our time charters, some of the time charters do have options, but they are on the charter side. So we do not include these optional periods because they are to be declared by the charters. And that is on the Indian fleet primarily. So on our side, we do not have any options to extend the period on the time charters that we have in our fleet at the moment. We, like I said before, have an aim to increase the share of time charters in our shipping portfolio.

So we are constantly working to try to increase the number of time charters and also its share of the fleet exposure that we have. And as I have mentioned before, I think if we can come back to a level around the 40% we had before the advanced gas transaction, I think we will be quite happy with doing so. But it is not like we are rushing into securing time charters at levels we do not find attractive. So this is something we are working on constantly, but it has to be done and conducted in the right way, so to say.

Climent Molins: That is helpful. Thank you. My second question was on the trading segment. Could you talk a bit about how the tariff turmoil affected operations and whether you have any visibility on Q2 results?

Kristian Sorensen: Yeah. Thanks. When it comes to product services trading portfolio, you know, that is shifting day by day and week by week. So I would rather refrain from commenting specifically on that. And we will have, as you may know, a new trading update in the middle of July, I think it is, and we will provide you with a status for the second quarter by that time. But I think it is difficult for us to comment on that since the portfolio, like any other trading portfolio, is shifting on a daily and weekly basis.

Climent Molins: Makes sense. That is all for me. Thank you for taking my questions.

Aline Endlicker: Thank you as well. Anyone else who would like to raise their hand? We have a few questions in the chat as well, but let's see if someone else wants to ask a question verbally. And if not right now, we can just move to the questions in the chat. So the first one is from Vasilis. Would you say that the recent VLGC spot rate strength is partly attributed to front-loading relating to the US-China 90-day trade truce?

Kristian Sorensen: Thank you, Vasilis. The strength in the spot market today is, like I also mentioned in the presentation, due to the strong fundamentals of the market, with very good export levels from the Middle East supporting continued growth in exports from the US. But, of course, when you have a tariff relief like we are currently having, it does definitely impact the freight market and the activity in the market positively. So I would say that it is contributing.

Aline Endlicker: Thank you. We have some more hands raised. Let's go with Marcus. If you could please unmute yourself. Marcus, we cannot hear you just now. Maybe try to unmute yourself.

Marcus: Hello? Can you hear me?

Aline Endlicker: Yes. Now I can hear you. Yes. Thank you very much. This is Marcus in Germany.

Marcus: Just a quick question on finishing the business with the Indian terminal investment. Is there any impact in quarter two on one-time costs?

Samantha Xu: Thank you for your question. So it is the first in the early stage for our involvement in the terminal in India project. So at this point in time, there is no significant sunk cost that we need to account for.

Marcus: Thank you.

Aline Endlicker: Thank you. We have another question in the chat. On product services from Arne. Congrats on the quarter. What is the confidence level for the product service VAR, please?

Samantha Xu: Thanks, Arne. I need to double-check on that just to answer you accurately. So if you do not mind, I will reach out to you via email.

Aline Endlicker: And then we have another question from Axel. Can you please explain the year-over-year increase in SG&A?

Samantha Xu: Thank you for the question. So as we have mentioned, as part of the product services performance, we will gradually accrue for the bonuses related to expenses based on the realized trading result. As for the year of 2023 and 2024, we have seen year-on-year improvement of the trading results, and also the same you can observe in Q1 2025 as well. So the SG&A increase is largely attributed to the accrued reflected as part of SG&A.

Aline Endlicker: Thank you, Samantha. And actually, there has been another question from Arne, which I would also like to read out, of course. Could you give some more color on the decision to limit the share buybacks to only $2.7 million compared to a capacity of $20 million, if I remember correctly?

Kristian Sorensen: Thanks, Arne. As you know, there are certain limitations when you execute on the share buybacks and how much you can buy every day. And that is one reason for it. And the other reason was that the shares started to increase quite shortly after we activated the share buyback program. And we also had to end it because we were entering our blackout period, where we are very much restricted to continue our share buyback program as we enter the blackout period, which is a month ahead of the earnings release.

Aline Endlicker: Thank you, Kristian. And I would just like to hand back to Samantha on Arne's first question.

Samantha Xu: Hi, Arne. Thank you for your patience. Just to quickly check with the team and confirm my initial answer. Which I know is accurate to the confidence level of the product services VAR is 95%.

Aline Endlicker: Alright. Thank you. There is another question in the chat from Peter. Last year, the terminals were taking a larger share of the arbitrage and putting pressure on rates, but it seems that owners are again getting a more appropriate share. Do you expect this to continue?

Kristian Sorensen: That is a very good question, Peter. I think the answer to that is that every day, as I used to say, there is this arm wrestling between cargo owners, ship owners, and the terminals on how much of the profit in the LPG supply chain they can obtain. And the relative bargaining power of the shipping part of the value chain depends on the supply and demand of the vessels at that specific time. For this year, going forward, we see very little growth in the VLGC fleet.

And with continued export expansion plans from the US, which we believe will mean more volumes for export from the US, it should be a good environment for shipping going forward, simply because the supply-demand balance is hopefully playing in the owner's favor.

Aline Endlicker: Thank you, Kristian. Do we have any more questions, either verbally or in the chat? So please put them forward. It does not look like it. Let me just double-check. No. Nothing so far. Then I will hand back to Kristian to conclude the call.

Kristian Sorensen: Thank you, everyone, for joining us this quarter, and we look forward to seeing you again next quarter. Bye-bye, everyone.

Aline Endlicker: Thank you very much. And this concludes BW LPG Limited's Q1 2025 earnings presentation. The call transcript and recording will be available on our website shortly. Thank you all for dialing in. We wish you a good rest of your day.

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