Earnings call transcript: Hoegh Autoliners Q4 2024 results impact stock

Hoegh Autoliners ASA (HAUTO) reported its Q4 2024 earnings, revealing a net profit of $138 million and an adjusted EBITDA of $181 million. Despite these robust figures, the company's stock experienced a significant decline, dropping 11.08% to $93.1, following the earnings announcement. According to InvestingPro analysis, the stock appears undervalued, trading at a P/E ratio of just 3.17 with an excellent financial health score. This reaction comes amid a broader market context where Hoegh's performance diverged from expectations, particularly in terms of investor sentiment.

Key Takeaways

• Hoegh Autoliners' stock fell by 11.08% after the earnings release.
• The company reported a Q4 net profit of $138 million and an EBITDA margin of approximately 50%.
• Contract coverage for 2025 and 2026 remains strong, exceeding 80%.
• The company continues to innovate with new zero-carbon capable vessels.
• Future guidance suggests Q1 2025 results may be slightly below the previous year's quarter.

Company Performance

Hoegh Autoliners demonstrated strong financial performance in Q4 2024, with a net profit of $138 million and an EBITDA margin around 50%. The company has maintained a robust operational strategy, with contract coverage above 80% for the next two years and a focus on innovation with its new Aurora class vessels. This performance is set against a backdrop of steady growth in deep-sea car volumes and a shift in Chinese automotive exports from electric vehicles to hybrid cars.

Financial Highlights

• Revenue: Not specified in the earnings call.
• Net Profit: $138 million.
• Q4 Adjusted EBITDA: $181 million.
• Total (EPA:TTEF) 2024 Dividends: $841 million ($4.4 per share).
• Q4 Dividend: $90 million.
• Net Interest Bearing Debt: Increased by SEK326 million.
• Cash Position: CHF208 million.

Market Reaction

Following the earnings release, Hoegh Autoliners' stock price fell by 11.08%, closing at $93.1. This decline contrasts with its 52-week high of $145.5, indicating a significant shift in investor sentiment. The stock's movement reflects concerns over future earnings potential, despite the company's strong current financial performance and strategic initiatives.

Outlook & Guidance

Looking forward, Hoegh Autoliners expects Q1 2025 volumes to align with recent quarters, with a gradual pickup anticipated as new capacity comes online. However, the company forecasts that Q1 results may be slightly below the same quarter last year. The company is also monitoring geopolitical developments in the Red Sea (NYSE:SE) and potential tariff impacts, although its direct exposure is limited.

Executive Commentary

Andreas Engye, CEO, emphasized the company's strategic strengths: "We now have contract coverage above actually our 80% target." He also highlighted Hoegh's commitment to global trade facilitation and robust financial structure, stating, "We have a very strong, very competitive financing structure."

Risks and Challenges

• Potential geopolitical disruptions, particularly in the Red Sea region.
• Macroeconomic pressures that could affect global trade volumes.
• Fluctuations in fuel prices impacting operational costs.
• Potential tariff impacts on automotive exports.
• The challenge of maintaining high contract coverage amid market volatility.

Q&A

During the earnings call, analysts inquired about the company's future plans for newbuilds and vessel sales, to which Hoegh confirmed no immediate plans. Questions also focused on the potential reopening of the Red Sea and its impact on trade efficiency, as well as the company's dividend policy and financial structure. The management expressed a positive outlook on contract negotiations and reiterated its commitment to maintaining a stable dividend policy.

Full transcript - Hoegh Autoliners ASA (HAUTO) Q4 2024:

Mai Lin Vu, Head of Investor Relations, Hoegh Outliner: Good morning and welcome to Hook Outliner's Fourth Quarter Presentations. My name is Mai Lin Vu, Head of Investor Relations. And with me today, we have our CEO, Andreas Engye, and our CFO, Espenst du Perreur. We will walk you through the business and financial updates of the last quarter. If you have any question, please send an email to our Investor Relations mailbox at iahoegh dot com, and we will take it up at the end of the presentation.

And with that, I will leave the stage to you, Andreas.

Andreas Engye, CEO, Hoegh Outliner: Thank you, Marien. Yes, welcome to a presentation of another strong quarter from Hoegh Outlanders. I'm going to take go through some highlights a little bit on the market before Espen. Distributed. For the first time, we'll present our financials.

USD 181,000,000 of adjusted EBITDA makes up another very good quarter, $138,000,000 of net profit, a gross rate above $100 marking a period of record high rates. Dividends of $90,000,000 for the fourth quarter, which makes our total dividend payments in 2024 up to $841,000,000 or $4.4 per share. The Q4 number in isolation is consistent with our dividend policy of distributing surplus cash at on the target on the target cash balance. It's strongly impacted by a accelerated delivery of new builds, which we believe is quite good for us. We have had three newbuilds delivered in the quarter.

And with the newbuild program, we are now paid a total of $280,000,000 in equity installments on newbuilds, which obviously goes out of our dividend capacity. We only have a net of $11,000,000 left, meaning that we are fully funded on our newbuild program. We remain committed to our dividend policy of not accumulating cash, and we are have a strong belief in a high dividend conversion also going forward. Equity ratio, still very strong but somewhat down obviously from adding vessels and debt with the three newbuilds and also making us now having four of the new Aurora class vessels in operation and operating very well, which is a strength for our future. The agenda of this is the normal brief market commercial update, touch on capacity, sustainability before you enter financial update and outlook.

On the market side, we have had continued strong momentum with growing volumes out of Asia. We've continued to increase our contract share and it's in Q4 approached 80%. We've had record high contracting development in the quarter. And we also have the highest net rate on record strengthened by also a strong contract portfolio. Slightly slight reduction in high and heavy brake bulk coming out of the very high contracting activity also on new vehicles.

Our contracting situation, our contract backlog has been substantially transformed through the quarter. We now have contract coverage above actually our 80% target, both for 2025, '20 '20 '6. We have an average duration of contracts of three point five years. And I also want just because there's a little bit confusion on our terms of contract and spot, where our definition is fairly strict in the sense that unless we do have pricing and volumes committed with clients, we call it spot, meaning that also a lot of our spots are covered by rate agreements and something that you could call contracts. I think it's also important to note that 60% of what we define as spot is high and heavy and breakable cargo, which is cargo that traditionally held sort of high, high strong rates through the cycle.

But I think the most important thing here is a total transformation of our contracting backlog and portfolio fully in line with our strategy in the same way as we held back in the beginning of the cycle to make sure that we were able to reprice appropriately. We're now at the stage where we believe that having a stronger backlog and having more relying more on longer term contracts is a commercially sound way to balance our portfolio. And we've done that, as I said, more successfully this fourth quarter than I think any time in the history of the company. Market wise, I think it's just the same history as always. Steady growth in deep sea new car volumes driven by Chinese exports.

I think I wish I'd make one market comment for the quarter or actually into this year is that we have been somewhat surprised by the speed and the ability of our Chinese customers to shift their product mix from EVs to hybrid cars in response to tariffs in Europe, just I think illustrating some comments we made earlier that it seems more likely that those tariffs will delay the electrification of the European carpool rather than necessarily curbing Chinese exports, which I think you already see in the automotive numbers. And so that's a maybe a sort of change on the market side. All of it doesn't affect volume, it does affect the sort of the products that are actually on board our vessels. High and Heavy is stable in 2025 in our expectations. We see growth trends.

It is continue to be an important segment for us. We have taken down the share slightly because of the attractiveness of the automotive market. We are adding vessels with market leading high and heavy and breakable capacities. And it's obviously a strong priority on our commercial activities. Capacity is we are now in the middle of sort of the delivery cycle of newbuilds.

2025 is going to be the year with most deliveries. We have a robust position in the sense that we have come quite far with four of our vessels in operation, three, four more coming within four more coming within a little more than the next year. We are getting our capacity renewals and vessels that operate extremely well. We also see that the kind of slightly more balanced market is affecting charter rates, which we generally consider as positive for operation. We have a strong contract backlog.

We've had several years now where we've been unable to use the charter markets to balance our system, which comes at a cost. And we're now seeing an evolution that allows us to a larger degree to use the charter market also to balance our system, which is positive for our operating structure and our ability to deliver strong product. We're also starting to see the impact of our strong commitment to reducing our carbon emissions. Obviously, this is it requires CapEx, it comes gradually, but we're now seeing a substantial decrease that will continue and accelerate with delivery on newbuilds. And the newbuilds and the Aurora class is a very important part of that, having 58% lower carbon emission out of yard than an average car carrier and having the potential going all the way to zero and we will get the first zero carbon capable vessels already in 2027.

But it's important to say that we also have a comprehensive technical upgrade program. And one of the and we had actually we had 11 drydockings in 2024, all covered or including substantial technical upgrades for fuel efficiency and economy and carbon footprint reduction. Obviously, also some CapEx associated with it, that this is with our dividend policy taking out of our dividend capacity. But it's also a situation where we sort of have taken large investments in 2023, '20 '20 '4. '20 '20 '5, we will only have six drydocks.

So we are sort of coming into a slower pace. But on the environmental side, we're still every drydocking is covering also a substantial technical upgrade to improve performance and fuel consumption and emission on our existing fleet. That ends the sort of the first part, and I would then leave it to Espen to take us through the financials in some more detail.

Espenst du Perreur, CFO, Hoegh Outliner: Yes. Thank you, Andreas, and good morning. Turning to the financials. Our volume in the fourth quarter came in at 3,500,000.0 CBM. Our volume in 2024 has been relatively stable.

Comparing to the fourth quarter twenty twenty three, volumes were meaningful higher, but that was before we decided not to transit through Red Sea. So we basically have been sold out this year and capacity have constrained any further growth. Looking at the rate side, I think when our market started to tighten back in 2021 and going into 2022, spot pricing went up quickly. The key driver for increased net rates over the last couple of years have been renewal of our contract backlog. And as Andreas already mentioned, we have record high net rates in the second half of eighty six point seven We saw the top line is driving our EBITDA and net profit.

We've seen increased revenue throughout the year, which is also then reflected in the EBITDA results. Very stable operating result and also stable EBITDA margin, just about 50% coming to the end of the year. Net profit is a bit more fluctuating, and then it's worth reminding that in the fourth quarter in 2023, we had gains from selling one vessel included. And in the third quarter twenty twenty four, we had two vessels included in the net profit, which is explaining the quarter on quarter drop of 28% into the fourth quarter. Turning to the EBITDA waterfall, it's relatively flat as already mentioned.

We saw some increased revenue from the second to the third quarter based on increased rates and then higher revenues based on higher volumes mainly into the fourth quarter. We've seen somewhat lower fuel prices and also lower consumption, which has also had a positive impact to EBITDA. We have a robust balance sheet. Net interest bearing debt was up SEK326 million as a consequence of the three We ended the year with CHF208 million in cash. Then we also have undrawn facilities of CHF211 million, so total liquidity reserve is CHF219 million.

Fourth quarter, another strong quarter with strong cash generation. We had SEK 184,000,000 from operating activities. Then we had a negative SEK 9,000,000 on related to dry docks and vessel upgrades. Then we have a negative SEK 21,000,000 related to investing activities, which was installments in newbuilds. We had high CapEx with SEK230 million in the quarter paid for newbuilding installments and we drew SEK209 million in debt.

Then we had normal mortgage and lease payments and we paid out dividend of SEK245 million in the quarter, which included the net proceeds from selling of two vessels. Turning to the balance sheet. Quarter on quarter, it has increased by 4%. We have added the three newbuilds and worth pointing out that the two leased newbuilds are on the balance sheet as owned vessels and with interest bearing debt. Interest bearing debt was up NOK 198,000,000.

Adjusting equity book value to the market value of our fleet, we get value adjusted equity per share of NOK 138. And as already mentioned, we are very happy to pay it out NOK $841,000,000 during 2024 and another NOK 90,000,000 to be paid out in March. Back to you, Andreas.

Andreas Engye, CEO, Hoegh Outliner: Yes. Thank you. And then the only thing remaining is some brief comments on the outlook. Starting with repeating, strongest we have now the strongest contract backlog ever following a very strong contract signing activity throughout 2024, but particularly in the fourth quarter. The volume in Q1 is expected to be in line with recent quarters following what we call it sort of a normal seasonal slowdown in the beginning of the year, and we expect volumes to gradually pick up also with new capacity and the new contracts coming into operation.

Delivery of newbuilds will gradually reduce the capacity pressure in our segment, but we expect the market to remain strong and we have access to more volume than we can carry in our key trade lines. We monitor the Red Sea situation continuously, and we do maintain contacts with all the relevant stakeholders. We are still seeing uncertainty in that situation that we do not really see an immediate return, but we as I said, things are developing and we're following it carefully. Lots of focus on geopolitical uncertainty and threats of new tariffs. Our direct exposure to the tariffs under discussion is fairly limited, but it's also important to obviously say that we are a business with our main purpose of facilitating global trade, and we are strong believers that, that adds value and are obviously exposed to dramatic changes in global trades.

But we are not seeing that seeing those signs for that. And I don't think it meaningful to speculate about some other processes and discussions going on. And as a result of, as I said, this sort of seasonally slow start to the year, which we also saw last year, we will have a expect the Q1 result, which is slightly below same quarter last year. So that concludes our presentation, and we are ready for questions. Maileen?

Mai Lin Vu, Head of Investor Relations, Hoegh Outliner: Yes, we have received a few questions during the webcast. And I can see that another question actually is referring to the same topic, so I can try to summarize these questions. So the first question is about capacity and fleet planning. Do we have any plan for further new buildings? Or do we have any plan for sales of ships in the future as a new building is coming in?

Andreas Engye, CEO, Hoegh Outliner: I think I mean, first, I think it's important to say that it's part of our business to continuously assess our fleet structure and our assets. But I think we've also been quite clear that we have a newbuild program adding 12 vessels, a market leading capacity also, I think, market leading in size relative to our current operations. We are quite satisfied with that. So we have no immediate plans of additional newbuilds. I think it is fair to say, if you go back to the charter and the statistics that we've been successfully able to sell some vessels in a strong market.

I think with newbuilds coming and with the market balancing, we do not expect lots of opportunities for that. But I think we will always review opportunities. But we actually do not have immediate plans neither on additional newbuilds nor on additional vessel sales. And but we do have I think we've commented on an intention to work more actively with the charter market.

Mai Lin Vu, Head of Investor Relations, Hoegh Outliner: Thank you, Andreas. And the next question is about the contract and contract renewal. How is the sentiment renegotiating contracts, long term contract customer these days? How fixed is the volume and what is the risk with the long term contracts we recently signed?

Andreas Engye, CEO, Hoegh Outliner: I've been extremely pleased with the sentiment in our contract discussions because we are discussing we have had very good dialogues and processes with strong OEMs on major trade flows where their main interest is to get the robust cover for their transportation needs. We've had the benefit and the pleasure of taking on new volumes for new OEMs, who either have new needs in new trade flows and also some that are less satisfied with existing arrangements and want new suppliers. So we've been able to build I think we've renewed almost all the contracts we've got for renewal in good processes. We've also added contracts from beyond that on several important trades. We've been able to select and focus on contracts that fits well in our trade system.

So I think in overall, we are very pleased with that. And there is a strong interest in our customer base to basically create an industrial strong transportation product. And there are various degrees of commitments in contracts, but generally, we've been able to achieve more balanced contracts, more specific commitments than we've had before. So we are confident that we have a stronger contract backlog and a contracting base and a contract quality than we've actually ever had.

Mai Lin Vu, Head of Investor Relations, Hoegh Outliner: Thank you, Andreas. And the next question, a less sensitive question is actually related to the macro pictures. There has been some signs saying that the rest of the opening the rest may be open earlier than expected. And the next question is basically about what would be the effect of rescue opening for us as business?

Andreas Engye, CEO, Hoegh Outliner: I think that is difficult to say because in some ways it would add obviously more capacity and take away some capacity strains. But I think with our current contracted portfolio, it would improve the efficiency and operation and it would actually allow us to take more volume in cargo. So I think we are on the balance saying that I mean, we would really want the Red Sea to open because it will improve the trade flows and the efficiency of our system. We think we have a contract situation and a contract volume that we will it will increase our ability to carry cargo. It will obviously also change the market balance over time and add to that, but we believe in that that would be a good thing for us.

Mai Lin Vu, Head of Investor Relations, Hoegh Outliner: Thank you, Andreas. And the next question about tariff, just to resonate what Andreas have been already saying in the outlook sessions. Of course, tariff is, in general, not good for business, but so far, our exposure is limited and we continuously monitor the situation. The next question is about dividend policies. This is a question coming from our analyst, Peter Hojian.

A diat text for the dividend policies to change. How do you see long term with our dividend policy?

Andreas Engye, CEO, Hoegh Outliner: No, I don't I mean, we don't really see any reason to change the dividend policy. And I think it's important to see where that comes from. As I said, we have created the balance sheet and we have a financial structure on our newbuild program. So we do not have any CapEx plans that are not fully covered by committed financing. All of that financing has duration beyond 02/1930.

A lot of it has duration five, six, seven years beyond that. So we have a very strong, very competitive financing structure. A lot of it also fixed at fixed income rates at times that has been are attractive relative to the current situation. So we have a financial situation that we believe is very robust. We do not have any additional CapEx plans.

And we have taken in the last couple of years two million out of our dividend capacity to pay installments on newbuilds. It's million left. So I think we have both we're both confident that we have a strong dividend capacity and that we have a financial structure and most of all have fully funded CapEx plans that allows us to continue with a very high commercial ratio. So we do not really foresee any change in our dividend policy. You will see quarter by quarter fluctuation given that we have set a target for our cash balance and basically said that we pay out surplus we don't want to accumulate cash, we pay out surplus cash.

There will be quarters like the fourth quarter where we take I don't think there will be another quarter where we take delivery of three that's in the quarter actually, but where we have accelerated newbuild deliveries. And on top of that, I think we basically also have spent almost NOK 10,000,000 on dry docks. We've had an intensive dry dock season and we have an ambitious program on drydocking. But again, there was twice as many drydocks in 2024 than we will have in 2025. So that's also something that is levering up.

We have had the peak on drydock activities in 2023 and 2024, which is sort of materializing in the also adding new builds and selling old vessels is converting into a slightly lower activity in the next couple of years. So, no, we have a we are comfortable with our dividend policy. We are I mean, the construction the construction of the dividend policy means that there will be variations from quarter to quarter because it is cash driven, but we're still committed to it.

Mai Lin Vu, Head of Investor Relations, Hoegh Outliner: And yes, I think that these are the main questions we received for the webcast. And of course, if you have further questions, feel free to send an email to our investor relation mailbox at iahope dot com, and we'll get back to you. Thank you very much for turning on and watching, and we look forward to see you next time.

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