Pacific Basin Shipping Limited (2343.HK) Q3 2026 Earnings Call

0:00 Welcome to today's Pacific Basin 2026 Third Quarter Trading Update Conference Call. I am pleased to present Chief Executive Officer, Mr. Martin Fruehgard and Chief Financial Officer, Mr. Jimmy Ng. For the first part of this call, all participants will be in a listen-only mode and afterwards there will be a question and answer session. Mr. Fruehgard, please begin.

0:24 Thank you. Yeah, welcome and thank you for attending Pacific Basin's 2026 first quarter trading update. We will as usually highlight the key points in the published presentation before we proceed to Q&A. Please turn to slide two. Dry ball market conditions further strengthened during the third quarter of 2026. geopolitical uncertainty, disruptions, and weather-related events continued to affect several key shipping routes, supporting ton-mile demand. Freight rates further strengthened, with BHSI and BSI increased by more than 25% year-on-year. In the third quarter, our heavy-size and supermax fleet recorded average net daily TCE earnings of $16,020 and $17,990 respectively, marking strong year-on-year increases of 37% and 34%.

1:30 For the first nine months of the year, we continued to outperform the respective indices, with Hadley Size and Supermax outperforming by 1,730 and 1,440 per day, or 13.9% respectively. We continued to enhance and renew our fleet. During the quarter, we exercised the purchase option on one long-term chartered Hadley Size vessel, took delivery of one new long-term chartered heavy-sized new building and we sold and delivered two 20-year-old Supermax vessels. In addition, we also declared a purchase option on three-year-old long-term chartered heavy-sized vessels with delivery in the fourth quarter of 2026.

2:19 As at the end of September 2026, we have a total of 258 vessels in operations comprising 106 owned vessels, 13 long-term chartered vessels and 139 short-term chartered vessels. Our current order book consists of six handy size and four ultra max new buildings with expected delivery between 2028 and the first half of 2029. We hold an option for two dual fuel ultra new buildings that is declarable in February 2026. and we hold purchase options on 11 modern long-term chartered vessels already in our fleet, which are declarable between 2027 and 2031.

3:08 We have two long-term chartered new buildings joining our fleet in 2027, one handy size and one supermax, both of which come with fixed price purchase options. These purchase options and our new buildings on order maximize our flexibility, enabling us to renew our fleet and allocate capital in a disciplined and value accretive manner. Now we'll hand over to Jimmy for an overview of the third quarter performance.

3:43 Thank you, Martin. Good evening, ladies and gentlemen. I will share with you some observations on the market and a snapshot of the market. and also our operational performance for the period. Please turn to slide four. Market freight rates maintained the momentum during the third quarter of 2026, supported by healthy dry bulk trade floats and continued inefficiencies across global shipping networks. During the quarter, market spot rates for HandySize averaged approximately $14,670 per day, representing an increase of 27% year on year. Market spot rates for SupraMax averaged approximately $18,290 per day, which was 28% higher year on year.

4:37 The freight market conditions year to date have been materially stronger than the last two years across both the HandySize and SupraMax segments. Geopolitical developments and other disrupting factors, such as at first weather conditions, continue to create inefficiencies in the industry. The US-Iran tensions remained, causing ships to reroute and affecting trading patterns due to severely restricted vessel transits through the Strait of Hormuz. Now with the limited progress in the US-Iran relations, the timing of any reopening remains uncertain. Trade market volatility is expected to continue with the various disruptions that are unlikely to be fully resolved in the near future.

5:27 FFA rates for the remainder of 2026 also point to strong market conditions ahead. Please turn to slide five. In the third quarter of 2026, as Martin mentioned earlier, our average daily TCE earnings of US$16,020 for HandySize and $17,990 for SupraMax represented an increase of 37% and 34% respectively compared to the same period in 2025. In terms of cover, we have currently covered 65% of our committed festival days for HandySize and 76% for SupraMax at $16,480 and $18,960 per day respectively.

6:23 We have retained exposure to the market through open festival days in attractive positions, giving us the opportunity to benefit from a seasonally stronger market in the remainder of the year. For 2027, we have currently covered 7% of our handy-sized festival days at $13,180 per day and 19% of our supermax festival days at $15,590 per day. Complementing our core business, our operating activity generated an average daily margin of $2,190 on about 6,610 operating days in the third quarter.

7:08 Now, this operating activity margin was significantly higher than that of last year. Please turn to slide six. In the third quarter of 2026, our handy-sized TCE earnings outperformed the spot market index by 1,350 per day, or 9%, whereas our supermax TCE earnings were $300 per day, or 2% below the index. Now that is primarily reflecting the Atlantic Pacific rate of ventures and also a deliberate backhaul positioning into the higher paying Atlantic market ahead of the typical strong fourth quarter. For the first nine months of 2026, we continued to record our performance with our handy size TCE earnings outperforming the market spot rate by 13%, or $1,730 per day, and our supermax outperforming the BSI by 9%, or $1,440 per day. This sustained outperformance reflects the strength of our operating model, The resilience of our commercial platform and the effective execution of our long-term business strategy in a highly cyclical market.

8:30 I will now hand you back to Martin to run you through the market dynamics and outlook.

8:36 Yeah, thank you, Jimmy. And please turn to slide eight. Seabourn dry bulk trade continued to expand during the third quarter, supported by ton-mile demand growth across several major and minor bulk commodities. Cargo volumes for minor bulk particular fertilizers were weaker, but continued geopolitical disruptions and trade inefficiencies resulted in broadly stable minor bulk ton-mile demand. Turning to grain, trade volumes benefited from stronger Argentinian exports following a record soybean harvest and increased US and Brazilian grain shipments. This was partly offset by the continued disruptions in the Black Sea.

9:23 Iron ore trade recorded healthy growth supported by robust demand in China with continued high volume of Chinese steel being exported. Coal demand also remained resilient amid continued disruption to energy supply and regional trade flows. In summary, drywall demand remained resilient during the first quarter. Ongoing geopolitical disruptions and trade inefficiencies resulted in longer voyage distances, which supported on-mile demand and tightened effective vessel supply. Please turn to slide nine. Global dry bulk net fleet growth is forecasted to be 3.8% in 2026 and 4.4% in 2027, driven by higher scheduled new building deliveries across the sector. However, handy size and supermax net fleet growth is expected to be about 3.9% in 2026 and 3.8% in 2027.

10:25 The total dry bulk order book currently stands at 15% of the existing fleet, while the order book for heavy sizes Supermax represents 8 and 60% of the existing fleet respectively. Both remain moderate and overall the order book in dry bulk remain much lower than in tanker and container sector. Please turn to slide 10. While the market fundamentals remain constructive, the outlook continues to be influenced by several macro uncertainties. US-China relations appear to be more stable in 2026, with US exports to China recovering but remaining below the pre-2025 level.

11:14 Current US-China trade arrangements have been extended to January 2027 and the suspension of the USTR Section 301 measures have reduced near-term uncertainty. However, the longer-term direction of trade policy and its implication for trade and shipping remain uncertain. The Arabian Gulf conflict continued to create disruption across global trade routes which has contributed to longer voyage distances and greater freight market volatility. The reopening of the Strait of Hormuz remains uncertain. El Niño caused adverse weather in different parts of the world.

11:59 Extreme weather conditions including hot and dry summers and typhoon impacted trade flows and caused congestions to major ports. These environmental disruptions also affect both energy demand and agricultural production. Stronger power demand is supporting Pacific coal volumes in 2026, while hot and dry conditions could weigh on grain production and reduce Atlantic grain volumes. These contrasting effects may affect trade patterns and increase volatility across coal, grain and other minor bulk markets. From a regulatory perspective, the details and future direction of the IMO net zero framework remain unclear. Global and regional regulatory developments will continue to influence investment decision, vessel specifications, and future fuel strategies.

13:00 Please turn to slide 11. Looking ahead, We expect the dry bulk industry will continue to be influenced by geopolitical disruptions, trade inefficiencies, and changing cargo flows, leading to stronger market outlook for the remainder of 2026 and also into 2027. El Nino weather-related disruptions, which are expected to continue into 2027 and will shift seaborne trade patterns, may also affect ton-mile demand. Despite these macro disruptions, IMFs forecast point to a positive direction with expected global GDP growth of 3.4% for 2027, meaning an improving global economy.

13:48 FFA rates for the fourth quarter of 2026 remain at healthy levels, averaging approximately 16,230 per day for handy size and 18,980 per day for supermax. In the dryball sector, Overall dry bulk ton-mile demand is projected to increase by 3.7% in 2026 and 3% in 2027, while minor bulk ton-mile demand is projected to increase by 2.7% this year and 3.1% in 2027. This is driven by demand in iron ore, grain and minor bulk cargoes and long-haul trade routes that support ton-mile demand. On the supply side, net fleet growth of overall dry bulk is expected to increase to 4.4% in 2027, but minor bulk net fleet growth is forecasted to slow to 3.8% next year.

14:41 However, the aging global fleet, tightening environmental requirements, and continued market inefficiencies are expected to narrow the supply-demand imbalances longer term. Overall, the macro environment and trends points to a positive direction for the dryball sector, as supported by the strong fundamentals and persistent disruptions in the market. With that, I would like to conclude our 2026 Third Quarter Trading Update presentation and hand the call back to the operator for Q&A. Thank you. We will now begin our question and answer session. If you have a question for today's speaker, please press the raise hand button and you will enter the queue. After you are announced, please unmute yourself, state your company and name and ask your question. You may also type your questions in the Q&A box.

15:37 Our first question comes from Paris Jane from HSBC. Please go ahead.

15:43 Hi, Martin. Hi, Jimmy. Thank you for the presentation. I have a question. Now that 2026 is pretty much in the bag, if you can talk about your initial thoughts on 2027 and looking at today's rates, are there opportunities to get into one-year TCE rate kind of a market, or you would still continue to Expose yourself to this portrait given relatively higher rates. And secondly, with respect to the recent weakness in the cape size because of iron ore, is it more cyclical because of the maintenance of the factories in China? Or you would think it more the other reasons and will that have an impact on the smaller vessels?

16:37 Thank you.

16:39 Yeah, thank you, Fresh. Good question. I think, first of all, I think we've been quite successful this year actually positioning ourselves correctly in the market. So we took less cover. So I think, you know, What really went well, a lot of things have gone well so far this year, but basically also we got the timing right and positioned ourselves quite well for this market. I think we're still quite well positioned with the fleet all in all. We, of course, as you say, 2026 is not all over. We still have some earning capacity. We, of course, have good cover, but there's still some upside in the market for normally in fourth quarter. And we also have open days to cover.

17:31 So I think we're in a good position. I think Q1, if you look into next year, would we take cover? We have taken a little bit of cover, but it's not much as you can see on our cover on that part of it. And of course, we are actually quite positive about next year. It's hard to find something when you sit and look at it that... World economy and all these things can of course change things, but when we look fundamentally at our business and this demand and when we talk to the customers, we're actually quite optimistic about the market. We are getting into the contract season and I think what also a little bit happening at the moment that maybe our industrial customers, I think they will continue to extend the contract into next year.

18:17 I think those who are maybe a little bit more trading oriented would probably pull back a little bit. It is not only the freight rates, but also the oil prices, of course, is very high, bunker prices. I think many are holding back on taking contracts into next year and also if you very aggressively want to take cover next year you actually have to discount quite a bit on that part and we are not really willing to do that at the moment and we rather take the earnings here now and maximize our short-term earnings and And with the view that these disruptions that we see at the moment, I'm sure some might go away, but it's very hard, Pares, to see that these will disappear. And on top of that, you have El Niño and so on.

19:04 And I would also say that something we are looking at as well is the demand in the market. Our volumes on the minor bulk has not really increased. But when we talk to the market, our customers and so on, demand is there. Fundamental demand is there. And I think that promised quite well for at least a shorter period going forward. So we, of course, have positioned ourselves on purpose in the sense that we are actually quite positive. about the market also going forward. The Cape size market, of course, much more volatility in the Cape size rates. You know that from the past. More liquidity in the FFA part of it. So we are not experts on the Cape sizes, but we see it again and again.

19:50 Our earnings are normally much more stable. And of course, there's not as much liquidity in the derivative market as you see on the Cape sizes. So I'm not going to... Capesize is still very positive Let's see what happens. But of course, it has an impact that you can see our share price today.

20:37 Unfortunately, the PDI has an immediate impact on our share price. Actually, our earnings have not moved at all, at least for now. Fair enough.

20:49 That's very, very helpful. Thank you and have a lovely evening. Thank you, Paresh. Thank you. Our next question comes from Nathan Gee from Bank of America. Please go ahead.

21:01 Hey, Martin. Hey, Jimmy. Thanks for the call. Maybe two questions from me. Firstly, if I'm looking at your Supermax 3Q rates, It seems like it came in under what you secured at August. So just help me understand that in a market where market's going up and I think that GooseBrate had not included a scrubber premium, which I think was good. So that's the first question. Second question, just in terms of operating activity margin, we won't be extrapolating this, but just help us understand what drove the 2K for the quarter. Thanks.

21:33 What was the last question again?

21:35 So just operating activity margins. So how did it get to the 2K?

21:42 Yeah. Yeah, thank you. And of course, you have to pinpoint yeah the supermax uh outperformers or underperformers it is so thank you for that um and you know it is it's actually a multiple first you actually also write our cover going into the into the the third quarter was uh the rate was a little bit higher than that we actually ended up with and it's actually it's of course there's always multiple things but reality it has to do with uh It has to do a little bit with the weather. We have some typhoons in the Pacific. We do quite a lot of steel out of China and also activity on that part of it. And the weather pattern actually had an impact on on that operation and we lost some time on that part of it.

22:29 We also, the market actually for the ultras, actually the market in the Atlantic was actually much better than in the Pacific. So, and actually many of our open positions were in the Pacific. So we didn't get the full value out of it. And this is, of course, an average of the two. So that was also part of it. And then we also, because fourth quarter is normally where the Atlantic market starts going up, we have actually positioned quite a bit of our ships, of the supermaxes, into the Atlantic, so backhaul. So we actually have more than half our fleet on the Supras now in the Atlantic. in sort of an attempt to capture the market for the grain season when that comes up. And of course, we hope we are right in that positioning.

23:15 But that also had an impact on the performance. So, you know, and there's probably a few more things in it. It's not just one thing, but it's partly how we have positioned ourselves, it's partly weather, and it's partly also the indices that Pacific Atlantic that was actually on the Shrew was a big difference. was actually the other way around and again it shows a little bit about the situation now with all the disruption going on that market sometimes actually develops a little bit peculiar compared to it to in the past and that of course has an impact on on our performance of that part but i do hope and believe that in fourth quarter you'll see an improvement also i have to say you probably have to look at it a little bit more than just quarter by quarter you know i think we probably have to look at it a little bit longer distance but But fair enough, and of course, it's also something we look at immediately when we see it. In respect to the operating business, yeah, but I think partly we are just maybe getting better at it and, of course, having more focus on that part of it. It is an important part of our business, of course, to do the operating business. And I think this year the commercial people had maybe focused a little bit more on the margins and maybe less on the volumes.

24:34 So I think that's part of it. Maybe also a little bit part of that early in July, the market actually, the indices in the market actually came down. Normal summer market came down and then of course it started increasing again. And normally our operating businesses is always doing well in an up-going market, whereas our outperformance does the other way around. But I think also there is more focus on the operating. Of course, focus on the core fleet, but there's no doubt that we have a good model on the operating business and it actually contributes quite well to our results.

25:07 That's perfect. Just to follow up, Martin, you've normally guided operating activity margin, I think $700 to $800 per day. In this context of the commercial team focusing more on it, should we be thinking more than the $700, $800?

25:24 I hope over time, again, a little bit like the overperformance, I think we have to look at it over a longer period. There will be some volatility or some changes over time in that. I think hopefully we can see a trend going forward on that part of it. And we would also like to do more volume, but of course, you know, the margins are super important. But I think that the 750 is probably more just saying that if we can, you know, If we can calculate $750, we will be interested in doing the business on that part, and hopefully there's a little bit of an upside on that part. But I hope to see a trend going forward, and that's of course our aim, to see at least we get a good margin and hopefully an increasing margin over time.

26:12 There's probably a limit to how much you can get, but hopefully we can do better over time.

26:18 Perfect. Thank you, Martin. Thanks, Jimmy. Thank you. As a gentle reminder, if you would like to ask a question, please use the Zoom, raise your hand button at the bottom of your Zoom screen. You may also type your questions in the Q&A box. We have a question from the Q&A box. Hi, Jimmy, sorry, unable to speak on the call, but if you could address how you would answer the share repurchases, if not reaching the 40 million threshold, will that transmit still in the form of higher dividends?

26:54 Yeah, thank you. Thank you for the question. So just to remind everyone on the call. So we have announced earlier this year that we have the intention to repurchase up to 40 million worth of shares. And in the first half of the year, in our interim result announcement, we did announce that we bought back approximately 3.5 million US dollars worth of shares. And since 2024, we have actually repurchased around US$84 million worth of shares in total. Now, given the price that our shares are trading at the moment, it may not be the best timing to execute the remainder of the buyback that we aspire to do. But for the remainder of the year, of course, we will see how our share price performs and see if there are any pockets of windows, pockets of opportunities that will allow us to, that would mean that it makes sense to buy back our shares, which of course needs to be value accretive to the company.

28:06 On the other hand, on the dividend policy, we announced earlier in March This year, our enhanced dividend policy, which I will just quickly recap, which is to distribute up to 100% of net profit, excluding festival disposal gains when the company is in a net cash position at year end. Again, in the first half of 2026, we distributed 102 million worth of dividend, which was exactly 100% of the first half 2026 net profit, excluding festival disposal gains. So I'm not allowed to provide a proper forecast or cashflow forecast under the regulatory framework, but as you would expect, I've seen from our interim results, we distributed 102 million US dollars worth of dividend. And also from the presentation that you have heard just now, we did have a very solid third quarter performance and also a pretty constructive outlook for the remainder of the year.

29:20 So I guess that can shed some light in terms of what sort of financial numbers that we would land for the full year.

29:30 Maybe I could just add that also the development we see also over the entire year here is that the asset values continue to go up actually quite a bit for the second hand values and of course we own 106 ships And so, of course, the NAV is also increasing for us. That doesn't mean we will do the share buybacks necessarily, but that's something we evaluated on an ongoing basis. But the asset values are actually also increasing quite a bit. Thank you. Our next question is from Paris Jane from HSBC. Please unmute your line and ask your question.

30:14 Yes, sure. Martin, if I can just follow up. How should we think about your capital deployment in terms of the cycle? Will you be a buyer of second-hand or renewable vessels? or you will rather be a seller of your older fleet going into 2027? And how should we think about some of the optionality that you have in terms of crystallizing that in this year or the year after?

30:49 I was just about to say all of the above, but we would be super disciplined. We are of course enjoying that the asset values are high. We haven't really bought secondhand ships in the market for multiple years. and when the asset, second-hand value started going up, we started doing a little bit more on the long-term charter deals with the purchase options that we have. I always forget the exact number. We have 13. Next year, with the two deliveries, we'll have 14 purchase options where we already declared one. So we'll have 13 left. So next year, with the two deliveries we have, we have declared one. We have 13 purchase options on the long-term charter deals.

31:34 We have 10 new buildings plus two options. So all in all, that is about 25 ships in the pipeline of which we are committed to 10 at the moment. And I really like to be in that position because you could say if asset values or something happens in the market, we only committed to 10. But if the market stays strong as it is at the moment, we do have a pipeline of 25 ships in it. We will probably continue to look at more opportunities as we are declaring options on some of the long term charter deals. We are looking for other options, other long term charter deals with purchase options. And of course, we constantly look at the new buildings and we have the two option that has to be exercised in February next year.

32:25 We're also looking at that and see what can we do about that. But I think we're super disciplined, you know, respecting the asset values are high. But on the other hand, when we look at the yards, the yard capacity, we look at inflation in the world and so on. And we also look at the age profile of the fleet and so on. We are probably getting closer to where we actually also see that actually supply demand and requirements for new buildings. It may be a little bit more balanced than it was a year or two ago because we are getting closer to where there is quite a big fleet that has to be renewed. But we will still be super disciplined on that part. ultimately try to ensure that it is value accreted to the shareholders whatever we do on that part but I really like the optionality we have in the business and you know so still committed to something but there's a lot of optionality that's a good position to be in at the moment absolutely thank you very much thank you as a gentle reminder if you would like to use the raise hand button at the bottom of your zoom screen or also type your questions in the question and answer box As there are no further questions, we will now begin closing remarks.

33:42 Please go ahead, Mr. Martin Fruergaard.

33:45 Yes, thank you very much. So, our continued TCE outperformance and increasing operating margins reflect the strength and resilience of our operating model, a well-maintained fleet, industry cost competitiveness, and our long-standing customer relationships. Coupled with our robust balance sheet and disciplined approach to fleet growth, These strengths position Pacific Basin well to manage near-term uncertainty and to seize opportunities as they arise. Our business strategy is centered around disciplined capital management and maximizing flexibility for future growth with the ultimate goal to deliver sustainable shareholder returns. Thank you again for joining the call today. If you have any further questions, please feel free to contact us.

34:30 Thank you for your continuous support and have a great evening. Thank you very much. Thank you. This concludes our conference call. Thank you all for attending.