Musing on BW LPG

Investment Analysis Clubs Hohum's RollerCoaster Ride
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On 05/30/24, BW LPG (BWLP) reported their Q1 2024 results. Since then, I have spent more than a few hours thinking about the company, its business lines and its valuation.
To summarize, BWLP owns or manages a fleet of 46 vessels (44 VLGCs, 2 MGCs). The vessels fall into one of four categories
A. Owned - 19 VLGCs
B. Charter-in - 7 VLGCs
C. BW LPG (India), a 52% owned subsidiary - 8 VLGCs
D. Operated - 10 VLGCs, 2 MGCs

Though category D (Operated) involves ships, I infer from the BWLP presentation slides & Earning Call transcript that the revenue generated from this category is not from the shipping side, but the actual cargos on the vessels. Or perhaps, fees related to the physical cargos.

Some vessel valuation “boundaries”

  • Avance Gas sold two VLGC newbuilds that delivered earlier this year for $120M each. The vessels were ordered most likely in 2022 as DF (dual fuel) models and had one upgrade prior to delivery (capable of carrying Ammonia as cargo). Avance Gas ordered the vessels for around $84M each. Current VLGC newbuild cost from top South Korean yard is probably in the $120M - $125M range & delivery in the 3 year vicinity.
  • In late 2023, BWLP sold a 2008-built VLGC for $64M. The vessel delivered in Jan 2024, and the company had a book gain of ~ $20M
    https://splash247.com/bw-lpg-sells-2008-built-vlgc-for-64m/

Each vessel in BWLP’s owned fleet is 2010 (oldest) - 2017 (youngest) built VLGC. So, that is helpful if one were trying to value the owned fleet. In regards to debt, BWLP shows two circles
i. Shipping finance
ii. Trade financing
My guess is Shipping finance covers categories A & C, and Trade finance covers category D.
If that’s safe, and assume shipping finance only applies to category A, then debt is $244M/19 = ~ $13M per owned vessel. It just occurred to me, the catch on this might be footnote (2). Hmm! Very high level Balance Sheet data in Slide 12
(Slide 13 for debt data)

BW LPG (India) consists of 8 VLGCs, and generally has older vessels vs the owned fleet. Three of them are 2007 builds, and thus fall outside the prior valuation guidelines.

Finally, category D (Operating). In the presentation, Slide 11, seems to be a “black box” that just spits out numbers - gross profit, net profit. etc. In the Call, the CEO talked about terminating a deal with Vitol (4 VLGCs with Vitol as beneficiary) at the end of Q2 2024. What will the impact be to BW LPG? For Q1, net profit was $21M. Adjust that figure? Not sure.

Charter-in days starts to taper in Q3 & Q4 2024, then more significantly in 2025. My guess is that charter-in is just a way to supplement the fleet. The cost of the charter-in vessels is offset by the revenue earned by the charter-out contracts (though they seem to be excluding the operating costs for TC-out charters)

Final thoughts:
Very nice low-debt company, good pay-out in 2023 (looking good for 2024), BW LPG (India) TCs seem to offset cost of charter-in, Product Services (category D) might provide a 10-15% upside to net profit

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07/08/24
Additional poking around on this name proved useful. What I did was skim thru their 2023 Annual Report. Since it was produced prior to the company’s US listing, it has the added advantage of being less cumbersome than a typical foreign company’s Annual Report for the SEC (the 20F report)
Why did I like the 2023 Annual Report?
Data, or data-points that become helpful for modeling

  1. Besides the vessel subsidiary, India is a lot more interesting both as country and a BWLP revenue stream going forward.
    a. BW LPG has an additional asset in India. It is a joint venture with an entity called Confidence Petroleum. The 50% partners have a goal of expanding and/or improving India’s LPG infrastructure. A plan-in-progress involves the development of an onshore LPG import terminal.
    b. BW LPG is the largest owner of VLGCs in India - the fleet accounts for the 30% of LPG imported into India, and 20% of the Time-Charter market.
    c. The added advantage of building the LPG import terminal - India’s LPG port infrastructure is not great currently. BWLP provided a stat that indicates 20% of an India round trip voyage is spent waiting in the port. The construction of the port started in 2024, and will be completed in 2027.
    d. Investment in this effort is manageable - about $10M from the joint venture initially.
  2. The Operated segment is a relatively new idea. At least, it got more structure in 2023. Tracing back to the prior year (2022), the Operated segment was only 5 VLGCs. It was 12 @ EOY 2023, and per the Q1 2024 call, it will become smaller the 2nd half of 2024.
  3. 2023 was an unusually good year for BWLP. The company made money in the shipping market (TCE revenue), and from the trading segment (Operated services). The dividend payout in $$ for 2023 was the equivalent of the 4 prior years combined. (This meshes well with a comment the CFO made wrt Q2 2024 – while the rate in Q2 (~ $48K daily) is lower than Q1 2024, the TCE average is very healthy from a historical perspective)
  4. 2023 was the second year BWLP had a majority of its owned VLGCs (15 vessels) utilizing VLGC as a fuel., The company also sold a few of its older VLGCs
    [I draw parallels to what FRO did after completing its major acquisition of 24 VLCCs from EURN. With more Eco VLCCs, FRO sold off all its non-ECO VLCCs]