Comparison of First Half of 2020 with First Half of 2019
PT Buana Lintas Lautan Tbk (“BULL”) reported record net profit of US$32.2 million on revenues of US$98.0 million in the First Half of 2020 compared to net profit of US$9.7 million and revenues of US$48.8 million in the First Half of 2019. These represent 3.3x and 2.0x of the corresponding numbers in the First Half of 2019. The strengthening results are due to the following factors:
1. Record fleet growth with 14 additional tankers;
2. All of the additional vessels are significantly higher margin large tankers;
3. Increased contribution from higher margin international operations.
Between 1 July 2019 into 31 December 2019, BULL took delivery of 6 additional ships into its fleet. Additionally, BULL also took delivery of another 8 vessels in the First Half of 2020 which had partially operated during this period. On a combined basis the effective fleet tonnage capacity increased from 887,307 DWT to 1,888,948 DWT, an increase of 112.9%. The number of vessels increased from 19 vessels to become 33 vessels.
At the same time, the average Time Charter Equivalent (“TCE”) earnings for all of BULL’s main tanker segments increased due to BULL’s diversification into the international market. In the First Half of 2019 approximately 15% of BULL’s TCE earnings were from international operations. This increased to approximately 35-40% in the First Half of 2020. Additionally, in the international tanker market, the TCE rates for Long Range 2 (LR2) tankers and Handy-sized tankers increased by 75.7% and 33.6%.
Comparison of Second Quarter of 2020 with First Quarter of 2020
The Company is focused on its core net income as a performance benchmark. The core net income excludes non-operational or extraordinary items such as non-cash foreign exchange gains or losses as well as other items. The Company recorded.
Second Quarter of 2020 core net profit of US$19.1 million, which is a 42.5% increase compared to the First Quarter of 2020 core net profit of US$13.4 million.
The higher performance in the Second Quarter of 2020 is driven by the 75.2% increase in TCE rates for LR2 tankers as well as the full utilization in the Second Quarter of 2020 of the ships delivered in the First Quarter of 2020, bringing effective tonnage to 2.1 million DWT from 1.7 million DWT.
Although charter rates in the First Half of 2020 have remained healthy due to the increased demand from floating storage to store the excess oil production, in actual fact the First Half of 2020 had seen substantial negative effects from the onset of the COVID-19 pandemic. Not only did it severely reduce the consumption and production of crude oil, but it had also artificially increased the world’s operating oil tanker fleet capacity.
Normally, in any given month approximately 3- 3.5% of the world’s fleet is non-operational as all vessels are required to be docked for maintenance every 30 months. However, since all of the major ship repair yards were closed for most of the First Half of 2020 due to COVID-19 and even changing crew becomes practically impossible, these oil tankers could not be docked and remained operational thus artificially increasing the operational fleet by around 7-10%.
Going ahead this will reverse and become a positive impact for the oil tanker market. These ships with delayed dockings must now be docked, and thus reducing oil tanker capacity by 7-10% over the next few months. The month of June had seen 84% more tonnage in dock than in May, and this trend is expected to intensify over the next few months as more shipyards reopen.
Demolition of older ships are also expected to restart which will further reduce the global oil tanker fleet capacity. Analysts estimated 6 million DWT will be scrapped in 2020 and another 12 million DWT in 2021.
The experience of China gives confidence that as the world’s economies gradually reopen, oil demand is expected to rebound quickly. China’s oil demand of 13 million barrels per day in the Second Quarter of 2020 is already higher than in 2019 and is expected to continue to grow. This rapid recovery has resulted in severe port congestions where oil tankers now have to wait over 30 days in order to discharge. This further reduces the available oil tanker fleet.
Most importantly, oil production is expected to increase substantially starting in August. Not only will OPEC+ increase production by 2-2.7 million bpd, other countries will also increase their production by 1.5-2.4 million bpd for a combined increase in oil production of as much as 5.1 million bpd, the largest and fastest increase in oil production in history. This is much higher than the 1.8 million bpd increase in April during the Oil Price War which triggered a spike in oil tanker
Even with this increase in oil production, analysts expect the oil market to remain under-supplied by as much as 4-6 million bpd for the Second Half of 2020, especially going into the Fourth Quarter due to the seasonal increase in demand for oil due to the winter months. Historically, the highest oil tanker rates have been recorded during the Fourth and First Quarters of each year.
Another factor for revenue and profit growth is the increase in the fleet’s effective tonnage. The 8 large tankers delivered in the First Half of 2020 will fully contribute in the Second Half of 2020, driving significant effective fleet growth from 1.9 million DWT to 2.3 million DWT, a 21% increase. Additionally, the Company is confident of additional growth opportunities and will continue to position the Company for enhance performance.
In view of the foregoing, the Directors anticipate the performance of the Company for the Second Half of 2020 will continue to improve on the First Half of 2020.
Capital Market Recognitions
As the Company’s performance is gradually recognized by the capital market participants, the Company has been gaining recognition as reflected by its inclusion in 3 indices:
2. IDX Growth30
IDX80 and Kompas100 constituents are selected on the basis of high share liquidity and large market capitalization supported by strong company fundamentals.
IDX Growth30 constituents are selected on the basis of positive price trend relative to net income and revenue growth combined with high share liquidity and strong financial performance.
Time charter equivalent (TCE) is a shipping industry measure used to calculate the average daily revenue performance of a vessel. Time charter equivalent is calculated by taking voyage revenues, subtracting voyage expense, bunker/fuel, and port costs, and then dividing the total by the round-trip voyage duration in days. It is a measure to compare period-to-period vessel performance despite changes in the mix of charter types (i.e., spot charters, time charters and bareboat charters) under which the vessels may be employed between the periods.
Source: PT Buana Lintas Lautan