Dorian LPG: Inelastic Supply Side And High Order Book As Constrains; Rating Unchanged

Observe: I beforehand lined Dorian LPG (NYSE:LPG). In my earlier tackle LPG, I mentioned its deserves (fleet, financials, and valuation) and the LPG market, notably the VLGC phase. I gave LPG a maintain ranking. At present, I touch upon the final firm report, the Dorian’s valuation, and the LPG market.

LPG market highlights

LPG demand has grown globally, pushed by Asia, that accounts for 60% of seaborne demand and 58% of US exports. The desk beneath from the final presentation exhibits the demand for Asian LPG.

China leads, adopted by India. Asian LPG demand is projected to develop by one other 9% FY24. Petrochemical demand is likely one of the prime drivers for LPG demand in China. YoY development is 21%, whereas the CAGR for the final eight years is 12%. India’s main catalyst is retail demand, which has achieved a ten% CAGR for the earlier eight years.

The key provide supply is positioned on the opposite aspect of the globe. The US grew to become the undisputed chief in LPG exports, as seen within the chart beneath supplied by BW LPG.

The US accounts for 45% of seaborne LPG provide. The expansion price of the US LPG exports FY23 is 13.0%, whereas the FY24 price is predicted to achieve 7.3%. Center East exports elevated by 4.2% in FY23. In 2024, the exports are anticipated to stay the identical.

Then again, the VLGC provide aspect will not be enticing. The VLGC e book is 30%. 40 VLGC have been delivered in 2023, and 14 vessels are to be delivered in 2024. 4 of these have already been delivered. Let us take a look at the LPG provider’s order e book intimately.

Handysize (7% vs. 21%) and Small Fuel Carriers (6% vs. 24%) have considerably decrease order books than the share of ships older than 20Y. Conversely, MGC (27% vs. 11%) and VLGC (30% vs. 14%) have greater order books than the share of 20Y+ outdated vessels. Given these numbers and the inelastic provide aspect of delivery, I’m not excited concerning the VLGCs.

I consider a lot of the Alpha within the VLGC phase has been harvested, and Dorian isn’t any exception. The corporate operates a VLGC-only fleet of 25 vessels (21 owned + 4 chartered-in) at a median age of 8.0 years, properly beneath the worldwide common for LPG carries at 10.3 years outdated. Dorian ordered VLGC/VLAC with 93,000 cbm capability from Hanwha shipyard in Korea, and the anticipated supply is in 3Q26.

LPG final monetary report

2023 was a powerful 12 months for the LPG phase basically. Dorian’s final report is a wonderful affirmation. The desk beneath exhibits LPG operational figures for 4Q23 and 9M23.

In 4Q23, the corporate achieved $76,337/day TCE, which is 46% greater YoY. In the meantime, the every day OPEX grew by 2% over the identical interval. The fleet utilization declined to 93.6% in 4Q23 vs 97.8% in 4Q22. Trying on the large image, Dorian scored $64,120/day TCE charges for 9M23, in comparison with $44,435/day for 9M22. The OPEX elevated to $10,392/day 9M23 from $9,553/day 9M22. The utilization improved YoY, reaching 96.0% 9M23.

Increased charges, steady OPEX, and improved utilization resulted in sturdy monetary leads to 9M3.

Complete income in 9M23 reached $419 million vs. $256 million in 9M22. Over the identical interval, voyage bills dropped by 10% to $2.29 million. The OPEX elevated by 15% to $60 million in 9M23. Dorian delivered a $228 million internet revenue in 9M23, leading to $5.68/share EPS. Quarterly figures have been equally optimistic. The online revenue elevated by 96% to $99 million in 4Q23. Over the identical interval, Dorian delivered an adjusted EBITDA of $133 million and $2.48/share EPS.

Dorian has maintained aggressive revenue margins over the past quarters.

LPG holds the main place in opposition to its prime rivals within the VLGC phase, BW LPG and Avance Holdings. Dorian achieved superior margins on account of its greater spot publicity. The corporate employed greater than 90% of its fleet underneath spot contracts. For reference, BWLLF contracted 75% of its ships at spot charges and AVACF 71%. Dorian’s greater proportion of scrubber-fitted ships is one other booster for its profitability, resulting in wider revenue margins.

LPG doesn’t distribute common dividends. Nonetheless, the corporate pays particular dividends. On February 24, LPG declared a $1.0/share dividend, leading to a $11.5/share annual distribution FY23 or 10.4% TTM yield. BWLFF and AVACF distribute dividends with greater yields, 22.3%, and 28.8%, respectively.

Stability sheet

Dorian retains its steadiness sheet neat and tidy. The corporate didn’t change its capital construction QoQ.

Dorian has $213 million money, $564 million long-term debt, and $817 million whole debt (together with $167 million lease agreements). The capital construction has remained unchanged since 3Q23. LPG has 83.1% whole debt/fairness and 45.9% whole liabilities/whole belongings. LPG delivered $224 million working money stream and $198 million working revenue FY23. Over the identical interval, the corporate lined $25 million in internet curiosity bills.

Valuation

LPG inventory picks are restricted to a number of choices. Within the following paragraph, I describe Dorian’s rivals’ fleets.

Avance Fuel Holding (OTCPK:AVACF) owns twelve VLGCs with a median age of 4.7 years. Six are scrubber-equipped, 4 are twin gasoline, and two have typical propulsion. The biggest VLGC proprietor, BW LPG (OTCPK:BWLLF), runs a fleet of 45 VLGCs, 20 owned, 11 operated, six chartered-in, and eight as part of BW subsidiary. The common age of the BW fleet is 8.7 years.

I added Navigator Fuel Holdings (NVGS) and StealthGas (GASS) for extra context. Nonetheless, keep in mind these corporations don’t compete within the VLGC phase. GASS owns primarily small-sized gasoline carriers with a capability of as much as 14,999 cbm, whereas NVGS on Handysize vessels.

LPG is pricey in comparison with its friends, contemplating TTM EV multiples.

GASS trades on the lowest multiples. FWD figures, LPG appears moderately priced. NVGS is essentially the most fascinating firm within the group due to its Handysize-focused fleet and 50% possession of Houston Ethylene Terminal.

Let us take a look at the delivery traders triad: fleet specs, PNAV, and LTV.

LPG trades at 99% PNAV and comes with 40% gross LTV. Its direct rivals are AVACF and BWFF, contemplating their VLGC-only fleets. AVACF and LPG commerce near their NAV. Solely BWLFF from VLGC house owners provides a reduction on its internet asset worth. GASS stays the most cost effective within the group. Contemplating the availability glut with VLGCs, I’m not eager to pay 100% or extra P/NAV. As I discussed in my earlier article on Dorian, I missed the celebration, and now it’s too late to affix.

Remaining ideas

Dorian maintains sturdy solvency and liquidity metrics, mitigating the monetary danger. The common age of its fleet is 8Y, lowering the operational danger, too. Probably the most pronounced danger is the availability aspect of VLGCs.

If we flip to the proverbial anecdote ” The hare and the tortoise,” the availability aspect in delivery is the tortoise, and the demand is the hare. This precept is legitimate for all tangible assets-based companies. The availability is inelastic, not like the demand. This dissonance results in epic increase and bust cycles.

LPG as a phase, notably VLGC, is within the final innings of its enlargement section. The proportion of VLGCs older than 20Y is 14%, whereas the order e book is 30%. Whatever the sturdy LPG demand and Panama Canal drought, in my view, the risk-reward will not be skewed in traders’ favor. In different phrases, the draw back danger grows whereas the upside potential diminishes. Different delivery segments, reminiscent of crude tankers, bulkers, and OSVs, convey higher danger rewards.

I nonetheless have some publicity to the LPG theme by way of GASS and NVGS shares. Each are area of interest bets on the scarcity of small-size LPG carriers. Dorian is an effective firm with wholesome financials and enticing dividend yields. Nonetheless, I choose to park my money in alternatives with favorable risk-reward. My verdict stays unchanged: I give LPG a maintain ranking.

Editor’s Observe: This text discusses a number of securities that don’t commerce on a significant U.S. change. Please concentrate on the dangers related to these shares.