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Double Hull Tankers (DHT) |
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WIKI ANALYSIS
Double Hull Tankers (NYSE: DHT) is a small shipping company that operates nine crude oil tankers with a total carrying capacity of 1.66 million deadweight tonnes. DHT split off from its parent company Overseas Shipholding Group OSG and held its own IPO in October of 2005. Since then, the company is chartering out all of its vessels to OSG, with the earliest charters terminating in October 2010 and the latest terminating in January 2018. The company earned $102 million in revenue and $17 million in net income in 2009.[1]
DHT receives a daily minimum rate on each ship chartered by OSG in addition to a portion of revenues the vessels earn in the spot market. Most of the company's competitors make money by chartering out its vessels to oil companies on either a time charter or spot charter basis. Time charters are long term contracts that are written in advance of voyages, and spot charters are short term contracts, written at the time that services commence. Historically, spot charters have offered higher pay to ship owners but are less stable in nature.
As of February 2008, the newbuilding order book (the total number of ships on order globally) extended to 2012 and contained enough orders to increase the existing global tanker fleet by almost 40%. As tanker capacity increases relative to demand for tanker services, both charter rates and ship values fall. DHT's arrangement with OSG however, insulates it from fluctuations in tanker rates in the near term. In the longer term, as its ships come off contract, the company will see its exposure to spot markets increase.
Company Overview
DHT was manages 9 crude oil tankers for a total shipping capacity of 1,659,921 deadweight tonnes. All of these ships were double-hulled, meaning that they are not barred from transport in certain parts of the world like single-hulled ships are. Their fleet is relatively young; as of the weighted average age of its fleet is 9.7 years, compared to the world crude tanker fleet average of 9.7 years.
DHT has chartered out all of its vessels to its former parent company OSG. Thus, while DHT has substantial guaranteed income until their charters expire (beginning in late 2010, unless extended for a one- to three- year period at OSG's discretion), it also means that the company is for the moment solely dependent on the success of this one company.
The company's largest expense are those associated with vessel upkeep, maintenance, and operation. After its IPO, DHT began outsourcing these responsibilities to Tanker Management. a subsidiary of OSG. DHT's fees to tanker management are largely fixed, making their net income sensitive to changes in revenue. Should they maintain relations with Tanker Management, the company has already agreed to the price of future daily rates on the technical management of their tankers until October 2012. The chart below indicates that their daily time charter equivalents have been decreasing.
Business Growth
FY 2009 (ended December 31, 2009)[1]
- Shipping revenue declined 10.5% to $102 million. Average daily bareboat rate fell slightly to $27 million.
- Net income decreased 60% to $17 million.
- The company operated 9 tankers, the same number as in the previous year.
Trends and Forces
As contracts with OSG expire, DHT's revenue will become more volatile
Until 2010, 100% of DHT's shipping revenues will come from its former parent OSG. As DHT and OSG become more independent, the company will have to find other, potentially lower-paying clients and other, potentially more costly technical management. While it suffices for DHT to use a board of one CEO, one CFO, and one VP, the company will have significantly larger challenges as time increases the age of its fleet, decreases the value of its vessels, and makes its revenue and operating expense less predictable.
Oversupply of new vessels will drive down both spot rates and time charter rates
The newbuilding order book extends to 2012 and consisted of almost 2/5 of the existing world tanker fleet. While the growth of developing countries like China and India will continue to drive demand for tanker services in the future, the order book indicates that these considerations have already been taken into account, and that the industry will become even more competitive in the near-term.
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