Okeanis Eco Tankers Q3 2024 Earnings Report

Okeanis Eco Tankers EPS Results

• Actual EPS: $0.45
• Consensus EPS: $0.09
• Beat/Miss: Beat by +$0.36
• One Year Ago EPS: N/A

Okeanis Eco Tankers Revenue Results

• Actual Revenue: $84.93 million
• Expected Revenue: $74.61 million
• Beat/Miss: Beat by +$10.32 million
• YoY Revenue Growth: N/A

Okeanis Eco Tankers Announcement Details

• Quarter: Q3 2024
• Date: 11/8/2024
• Time: Before Market Opens
• Conference Call Date: Friday, November 8, 2024
• Conference Call Time: 8:30AM ET

Okeanis Eco Tankers (NYSE:ECO) is a Marshall Islands–incorporated, publicly traded shipping company specializing in the ownership and operation of eco-design product tankers. The company made its debut on the New York Stock Exchange under the ticker “ECO” in May 2019 following an initial public offering. It focuses on the acquisition of newbuilding medium-range (MR) and long-range (LR) product tankers designed to deliver enhanced fuel efficiency and reduced emissions.

As of its public listing, Okeanis Eco Tankers’ fleet comprises twelve eco-efficient vessels built by Hyundai Samho Heavy Industries in South Korea. Each vessel features optimized hull designs, energy-saving devices and Tier III-compliant engines that meet stringent international environmental standards. The company’s tankers are outfitted with ballast water treatment systems and slow-steaming capabilities, enabling them to transport refined petroleum products—including gasoline, diesel, naphtha and jet fuel—while minimizing their carbon footprint.

Okeanis Eco Tankers serves a global customer base across major shipping lanes in Asia, Europe, the Americas and the Middle East. The company’s technical management is provided by industry-leading marine operators, while its in-house commercial team negotiates time charters and voyage contracts with refiners and energy trading firms. Okeanis Eco Tankers is governed by an experienced board of directors composed of maritime, finance and business veterans who oversee its commitment to operational excellence and environmental sustainability.

Okeanis Eco Tankers Q3 2024 Earnings Call Transcript

Key Takeaways

• Strong Q3 performance with fleet-wide TCE of ~$44,000/day, adjusted EBITDA of $37.9 M, net profit $14.5 M, EPS $0.45, and full dividend payout of $0.45/share.
• Healthy balance sheet post-refinancing: $56 M cash, $658 M debt, 59% book leverage, 4% market net LTV, and estimated $7.5 M in first-year financing savings.
• Competitive fleet edge with 14 modern eco-tankers (5-year average age), fully scrubber-fitted, delivering 14% and 27% TCE outperformance on VLCCs and Suezmaxes respectively vs peers.
• Completed 5 of 6 planned drydocks ~10% under budget (~$2 M/vessel), using high-spec paint and graphene propeller coating to target a 10% fuel consumption benefit and $1 M annual savings.
• Q4 has underperformed expectations so far, with 66% of days fixed at $43,800/day, but management sees potential winter volatility and favorable medium-term fundamentals driven by an aging fleet and limited newbuild supply.

Presentation

[Operator]

Welcome to OET's third quarter 2024 financial results presentation. We will begin shortly. Aristidis Alafouzos, CEO, and Iraklis Sbarounis, CFO, of Okeanis Eco Tankers will take you through the presentation. They will be pleased to address any questions raised at the end of the call. I would like to advise you that this session is being recorded. Iraklis will begin the presentation now.

[Iraklis Sbarounis, CFO at Okeanis Eco Tankers]

Thank you. Hi, everyone. Welcome to the presentation of Okeanis Eco Tankers' results for the third quarter of 2024. We will discuss matters that are forward-looking in nature, and actual results may differ from the expectations reflected in such forward-looking statements. Please read through the relevant disclaimer on slide two. So, starting on slide four and the executive summary, I'm pleased to present the highlights of the third quarter of 2024. We continue on the track of very healthy commercial and financial results. We achieved fleet-wide time charter equivalent of about $44,000 per vessel per day. Our VLCCs were at $43,000, and our Suezmax is at $45,000. We report adjusted EBITDA of $37.9 million, adjusted net profit of $14.5 million, and adjusted EPS of $0.45. Continuing to deliver on our commitment to distribute value to our shareholders, our board declared the 10th consecutive capital distribution of $0.45 per share.

[Iraklis Sbarounis, CFO at Okeanis Eco Tankers]

That is the full payout of our EPS for the quarter. On a four-quarters rolling basis, we have distributed $3.31 per share, or 94% of our adjusted net income. During the quarter, we have successfully completed our five-year dry dock for the Nissos Kythnos, Nissos Rhenia, and Nissos Anafi. With five of our six planned dry docks this year behind us, we look forward to completing Nissos Donoussa later this month. On slide five, we show the detail of our income statement for the quarter and the first nine months of the year. Pool revenue for the nine-month period stood at over $212 million. EBITDA was approximately $167 million, and net income was over $95 million, or $2.97 per share. Moving on to slide six and our balance sheet, we ended the quarter with $56 million of cash.

[Iraklis Sbarounis, CFO at Okeanis Eco Tankers]

We also had a working capital increase with our trade receivables standing at $44 million, and our balance sheet debt stood at $658 million. On slide seven, we illustrate our most important competitive advantage, our fleet. This is the main driver behind our operational and commercial success. Our 14 vessels, all built at first-class yards in Korea and Japan, have an average age of five years. That is the youngest crude oil tanker fleet amongst listed . And we are also the only pure eco and fully scrubber-fitted fleet. These elements allow us to set a benchmark above the spot market established by conventional or mixed fleets. Slide eight. Moving on to our capital structure, post the recent refinancing exercise, we have successfully set our robust balance sheet. Our book leverage stands at 59%, while our market-adjusted net LTV is 40%.

[Iraklis Sbarounis, CFO at Okeanis Eco Tankers]

Our financings are a mix of traditional mortgage-backed banking loans, as well as sale-and-leaseback, and our financiers are balanced with both traditional European shipping banks as well as Asian banks and leasing houses. We're particularly happy to have relationships in all these markets, which will give us flexibility in the future. Flipping over to slide nine, we walked in detail through the refis back in August. Since we did not have the need for more capital, we were able to source funding with relatively low LTVs, and we focused on adding flexibility, improved pricing, we have estimated that we're saving $7.5 million in our first year, and extended maturities. Our current maturity profile is well balanced. Other than the two legacy leases on the Rhenia and the Despotiko, whose purchase options kick in the first half of 2026, all other maturities are staggered between 2028 and 2031.

[Iraklis Sbarounis, CFO at Okeanis Eco Tankers]

We have plenty of time to focus on the Rhenia and the Despotiko, but we look forward to the opportunity of further optimizing our structure then. In the meantime, while we're not actively seeking further funding, we're always on the lookout for opportunities that could further add value in an accretive way to our shareholders. I'm now passing over the presentation to Aristidis for the commercial market update.

[Aristidis Alafouzos, CEO at Okeanis Eco Tankers]

Thank you. This may be one of the quarters where your part is more interesting than mine, Iraklis. Q3 was a weak quarter, with consistent weakening beginning in June and with one period of brief strength in late July on the VLCCs. The market was hampered by weak refining margins, poor Chinese demand, and refinery turnarounds. We completed three dry docks as planned and repositioned four ships to the west. On three of these ships, we took advantage of the strength in the clean market to clean them up and move diesel from the Arabian Gulf to Europe. On one of our western vessels, we found a favorable cargo to fix east that earned a big premium to staying west. The Suezmax market was more stable in Q3 and tailed off towards the end of the quarter.

[Aristidis Alafouzos, CEO at Okeanis Eco Tankers]

We traded our Suezmaxes primarily in the west, fixing cargoes from the Mediterranean or West Africa. And on two of our ships, we found attractive front-haul voyages from the west to the east that outperformed the local voyages by a big margin, and we took those. Given that we have a western focus on how we trade our fleet, we immediately found backhauls on these ships and brought them back into home territory. It overall was an underwhelming quarter that required a lot of hard work and optimization to produce this result. Despite the seasonal weakness prevailing in both segments, towards the end of the quarter, we achieved a fleet-wide TCE of $43,900 per operating day. Our VLCCs generated $43,100 per day in the spot market. That's a 14% outperformance relative to all our tanker peers who have reported Q3 earnings.

[Aristidis Alafouzos, CEO at Okeanis Eco Tankers]

Our Suezmax generated $44,800 per spot day, a 27% outperformance relative to our tanker peers who have reported Q3 earnings, and these numbers reflect our actual book TCE revenue within the quarter as per our accounting standards. We flip over to slide 12 for a dry dock update. As we mentioned in previous quarters, we planned our dry docks in order for the ships to be available for an unexpected and wonderful Q4. We executed our plan almost perfectly, but the market isn't yet doing its part. We completed dry dock on five of our six VLCCs, which have their required special survey this year. Nissos Donoussa is the final VLCC to go into dry dock, and she'll begin her survey shortly. In terms of budget, the dry docks were completed about 10% below our internal budget at around $2 million per vessel, all-inclusive.

[Aristidis Alafouzos, CEO at Okeanis Eco Tankers]

$600,000 of this was allocated to using high-spec tanks that will improve performance. It takes time for our performance department to gather sample data to compare the current consumption to when the vessel was in a similar condition previously. But the results we have so far are very encouraging. We are currently projecting a 10% consumption benefit over a five-year period, with an annual saving for this year only of $1 million. We also decided to use a new graphene propeller coating on the propeller, which will reduce marine growth and also contribute to better propeller performance. The total average off-hire time of 29 days includes preparation for dry dock entry after completing the previous voyage. The average duration at the yard was closer to 20 days. Moving on to Q4 guidance on slide 15. So far, Q4 has materially underperformed our expectations.

[Aristidis Alafouzos, CEO at Okeanis Eco Tankers]

Many factors, such as poor ARBs keeping Atlantic cargoes in the west, low exports in the U.S. due to hurricanes, weak Chinese demand, and terrible refining margins, have met together to keep pressure on the trade market. Even winter temperatures and weather delays have not crept in yet. Right now, in Athens, it's 20 degrees and sunny. I do believe we will see winter volatility at some point this winter, and this will allow us to lock in some good fixtures. But we need to be patient and remain positioned to grab these when they come. In Q4, we have so far fixed another backhaul on a VLCC that we cleaned up and turned into an LR4 again. The rate we achieved on this voyage outperformed the dirty market backhaul earnings.

[Aristidis Alafouzos, CEO at Okeanis Eco Tankers]

Due to the longer duration, because the voyage is longer, we could open later in the quarter, and hopefully, a stronger market will be built. Our focus is on maintaining positions to fix attractive front-haul business when rates turn. But we're not fixated on this, and we take opportunities to fix long-haul business east when we find good opportunities and it materially outperforms the local voyages. So far, in Q4, we have fixed 66% of our fleet-wide days at $43,800 per day. And that breaks down to 63% of our VLCC spot days at $46,900 per day, a 26% outperformance, and 70% of our Suezmax days at $40,200 per day, a 23% outperformance. And both of these figures are relative to our tanker peers who have reported their Q4 fixtures. Continuing on to the next slide.

[Aristidis Alafouzos, CEO at Okeanis Eco Tankers]

As we do every quarter, we emphasize our consistent outperformance relative to our peers. On slide 13, we highlight how our ability to adapt and capitalize on market opportunities has resulted in sustained success regardless of market fluctuations. We are dedicated to maintaining this level of consistency moving forward, and as we will discuss in the following slides, the outlook for the next years is highly promising. Our ability to outperform is even more pronounced in strong market conditions. Now, let's look at the market outlook. Although, as alluded to already, the market has been somewhat below expectations, it's still profitable, with strong fundamentals, especially on the supply side for the crude sector. Starting with supply-side dynamics in the VLCC and Suezmax segments, we see an encouraging outlook supported by controlled order books and an aging fleet composition.

[Aristidis Alafouzos, CEO at Okeanis Eco Tankers]

Nearly 35% of the fleet is over 15 years old and will likely face pressure as it nears retirement or recycling. Currently, 17% of the fleets and Suezmax fleets, 17% of the Suezmax and VLCC fleets are over 20 years old, making them prime candidates for recycling in the near term. In 2028, we anticipate the number of over 20-year-old ships in the Suezmax and VLCC segments to be 30% or higher. That's a big figure. In addition to above, in both asset classes, approximately 25% of non-eco vessels are expected to face challenges in meeting regulatory requirements for the EEXI and CII compliance. These vessels may be forced into slow steaming in order to comply with these regulations.

[Aristidis Alafouzos, CEO at Okeanis Eco Tankers]

When we compare this aging fleet with an order book of only 8% on the VLCCs and 16% on the Suezmaxes, it is clear that the inflow of new tonnage is controlled and potentially still undersupplied. The supply picture becomes favorable when we consider yard capacity. As shown in slide 16, we're entering a new era for vessel supply, with two major challenges: an aging fleet and a significant reduction in yard capacity. Since 2010, global yard capacity has nearly halved, representing a 58% reduction. This decline in yard capacity is significant. It limits replacement potential and increases competition for new boat slots, especially as yards prioritize higher-margin projects like LNG carriers and container ships. As mentioned on the previous slide, we have substantial replacement need in the tanker market. By 2030, the number of tankers over 20 years old will double the current order books.

[Aristidis Alafouzos, CEO at Okeanis Eco Tankers]

This creates a potential supply squeeze as vessels leave the market faster than new ones are filled. Even if the order book accelerates, the current, well into the 28th for meaningful orders, it's hard to envision an oversupplied market. In summary, the combination of shrinking yard capacity and an aging fleet creates a more competitive supply environment. With limited new boat capacity, we anticipate that the fleet renewal will struggle to keep pace with retirement candidates in both segments. The demand side is less straightforward and compared to the supply equation. We expect steady growth, albeit at a slower pace. However, one positive factor is the ton-mile effect. Currently, most crude oil supply originates from the west, while most demand comes from the east, resulting in longer shipping distances. This imbalance supports higher ton-mile demand as supply must be sourced from more distant regions to meet global consumption needs.

[Aristidis Alafouzos, CEO at Okeanis Eco Tankers]

Additionally, demand acts as a driver of volatility, and we believe that even minor positive signs could have a substantial impact on rates. As traders, we appreciate volatility, and our history shows that we tend to outperform during volatile periods. To sum up, we believe there is a short-term volatility. However, medium-term fundamentals are very favorable for the segment. Handing back to you, operators. Thank you.

[Operator]

Thank you. If you'd like to ask a question, please press Star followed by 1 on your telephone keypad. If you would like to withdraw your question, please press Star followed by 2. When preparing to ask your question, please ensure your device is unmuted locally. First question comes from Liam Burke with B. Riley. Your line is open. Please go ahead.

[Liam Burke, Analyst at B. Riley Securities]

Yes, thank you. I was curious to hear in terms of directionally. I know that the quarter got off to a tough start on the partial fixtures. Directionally, could you give us any sense on how the quarter is progressing, or are we still seeing weakness as we finish the year?

[Aristidis Alafouzos, CEO at Okeanis Eco Tankers]

Hello. Thanks for your question. You can always look at the indexes that are printed to roughly guide where the market is, for example. But given that we like to triangulate our vessels, well, we can consistently outperform these indexes. I would say that in the last week, we've seen rates bottom out from the AG and from West Africa on the VLCCs. Today, the sentiment is a bit stronger, and we've seen rates push up a couple of points from the AG on the TD3 run. On the smaller segments, like Suezmaxes and Aframaxes, it still needs a little bit of cargo push to see rates pick up. But for the moment, today's picture is rates continue at similar levels to where we've reported our earnings so far.

[Aristidis Alafouzos, CEO at Okeanis Eco Tankers]

But hopefully, in the next two, three weeks, we'll see whether it's weather-created delays or more cargoes coming into the market, and we can see rates rally further from here.

[Iraklis Sbarounis, CFO at Okeanis Eco Tankers]

Liam, did you have any other follow-up?

[Liam Burke, Analyst at B. Riley Securities]

I do. I'm sorry. You've always expressed that you're very happy with the size of your capacity and the formation of the fleet. If asset values started backing off enough, would there be any consideration to grow the fleet?

[Iraklis Sbarounis, CFO at Okeanis Eco Tankers]

Look, we've talked about this in the past. One of the difficulties in answering a question like that is that we focus on a very specific subsegment of the business. So our scope is very, very narrow in terms of the tonnage that we would look at, modern, scrubber-fitted, eco. So the opportunities haven't been there in general to pursue transactions that make sense. Now, having said that, yes, we are perfectly happy with our size. But if we were able to source an opportunity that does fit within the scope and we could structure it the right way, accretive to shareholders, and without jeopardizing the dividend capacity, we would look at it. But we have been disciplined. We will continue to be disciplined in the future, and we just focus on maximizing returns.

[Liam Burke, Analyst at B. Riley Securities]

Great. Thank you very much.

[Iraklis Sbarounis, CFO at Okeanis Eco Tankers]

Thanks, Liam.

[Operator]

As a reminder, if you'd like to ask a question, please press Star 1 on your telephone keypad now. This concludes our Q&A. I'll now hand back to Iraklis Sbarounis for any final remarks.

[Iraklis Sbarounis, CFO at Okeanis Eco Tankers]

Perfect. Thanks, everyone, for listening in. We'll speak again in February. Thank you very much.

[Operator]

Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.

Participants

Executives

• Iraklis Sbarounis, CFO
• Aristidis Alafouzos, CEO

Analysts

• Liam Burke, Analyst at B. Riley Securities