Dorian LPG: Recent Correction Represents Buying Opportunity

seekingalpha11-21 00:02

Dorian LPG recently reported FY Q2 2025 figures, with net income down 90 percent y/y. In line with previous quarters, it declared a $1/sh dividend.It maintains a low net debt-to-assets ratio of 22%, ...

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In line with previous quarters, it declared a $1/sh dividend.It maintains a low net debt-to-assets ratio of 22%, ...</p>\n\n<a href=\"https://seekingalpha.com/article/4739027-dorian-lpg-recent-correction-represents-buying-opportunity\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Dorian LPG: Recent Correction Represents Buying Opportunity</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nDorian LPG: Recent Correction Represents Buying Opportunity\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-21 00:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4739027-dorian-lpg-recent-correction-represents-buying-opportunity><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Dorian LPG recently reported FY Q2 2025 figures, with net income down 90 percent y/y. In line with previous quarters, it declared a $1/sh dividend.It maintains a low net debt-to-assets ratio of 22%, ...</p>\n\n<a href=\"https://seekingalpha.com/article/4739027-dorian-lpg-recent-correction-represents-buying-opportunity\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4585","symbol_name":"ETF&股票定投概念","start_time":0,"source_url":"https://seekingalpha.com/article/4739027-dorian-lpg-recent-correction-represents-buying-opportunity","article_id":"2485418341","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2155470954/image_2155470954.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2485418341","pubTimestamp":1732118521,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Dorian LPG recently reported FY Q2 2025 figures, with net income down 90 percent y/y. In line with previous quarters, it declared a $1/sh dividend.It maintains a low net debt-to-assets ratio of 22%, complemented by a capable fleet of 25 ships, ensuring operational efficiency and longevity.The recent correction has adjusted Dorian LPG's share price to 92 percent of NAV, representing a possible entry point.While VLGC owner-operators face headwinds in the current market, fundamentals remain attractive.   Art Wager  Investment Thesis Note: Investors should view this analysis as an update to my previous article, published on Sep 11.  Since my last coverage of Dorian LPG , a Buy, the share is down about 20 percent. Its latest reported earnings showed a nearly 90 percent reduction in net profit compared to last year's quarter. Oops?","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4585":"ETF&股票定投概念","LPG":"Dorian LPG","BK4144":"石油与天然气的储存和运输","BK4588":"碎股"},"translate_title":"Dorian LPG：近期调整代表买入机会","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"LPG":0.9},"content_text":"Dorian LPG recently reported FY Q2 2025 figures, with net income down 90 percent y/y. In line with previous quarters, it declared a $1/sh dividend.It maintains a low net debt-to-assets ratio of 22%, complemented by a capable fleet of 25 ships, ensuring operational efficiency and longevity.The recent correction has adjusted Dorian LPG's share price to 92 percent of NAV, representing a possible entry point.While VLGC owner-operators face headwinds in the current market, fundamentals remain attractive.   Art Wager  Investment Thesis Note: Investors should view this analysis as an update to my previous article, published on Sep 11.  Since my last coverage of Dorian LPG (NYSE:LPG), a Buy, the share is down about 20 percent. Its latest reported earnings showed a nearly 90 percent reduction in net profit compared to last year's quarter. Oops? At best, performance in the shipping sector has been subpar in the second half of 2024. Simplified proxies for dry bulk (Golden Ocean), Danaos (container tonnage providers), Frontline (crude oil shipping), and SonicShares Shipping ETF look awful compared to a passive investment in the S&P500: Data by YCharts Historically high rates marked 2023 for LPG shipping, driven primarily by the Panama Canal disruptions. Water levels eventually normalized. New ships are coming on the water, and petchem demand from China has not been growing at the expected rate. Export capacity in the U.S. is becoming a bottleneck, driving down shipping's share of the crucial east-west LPG arbitrage. Is the party finally over after three fantastic years for shipping stocks, particularly LPG shipping? Companies like Dorian LPG have spent these years reducing debt. It ended Q2 FY 2025 with a net debt-to-total assets ratio of 22 percent. Its fleet is less than 10 years old, and it pursues fleet growth, prioritizing investment in existing ships. The party may be over, but the day-to-day operations are in much better shape than before about 2021. Dorian LPG is a financially strong company. Recent corrections in asset values and lower rates are, in my opinion, already priced in, making the stock well-positioned for growth in the coming winter quarters as demand traditionally picks up and the Panama Canal becomes crowded. The highly profitable rates of 2023 may not be coming back anytime soon. The speed of growth of the ammonia trade—the anticipation of which drives much of the newbuilding orders—is uncertain, which may introduce additional downward pressure on rates. However, the demand for LPG is supported by multiple factors, making the trade relevant in the years to come. Dorian LPG is still a Buy. Dorian LPG in Brief Dorian LPG is listed on the NYSE and incorporated in the Marshall Islands. It owns and operates 25 VLGCs, of which four are dual-fuel capable, with one new Very Large Ammonia Carrier on order, due for delivery in 2026. The company primarily exists because of two arbitrages:  The difference between the prices of LPG in the large producing territory (the U.S.) and the consuming markets in the East. This East-West arbitrage determines the theoretical maximum freight rates. The LPG-naphtha spread. Both naphtha and LPG can be used as feedstock in the petrochemical industry to produce, for example, propylene. Compared to naphtha, LPG's competitive prices make shipping attractive to consumers.  Since its founding in 2013, LPG's management has been more or less stable, and in this author's view, management has made prudent capital allocation decisions. LPG has paid quarterly dividends every quarter since Q1 fiscal 2022 (calendar Q2 2021). Its direct peer is Singapore-incorporated and NYSE-listed BW LPG (BWLP). Market Outlook The Order Book is a Cause for Concern Drewry published an excellent article in October covering the strong newbuild market for gas carriers. Two years in a row, a record number of orders have been placed, driven by ammonia (VLAC) and ethane (VLEC) carriers.   Newbuild orders, 2014-2024 (Drewry) Dorian estimates that the global order book stands at 10 percent of the fleet, which is not a particularly high number, but that excludes the VLACs and VLECs on order. Remember, VLACs and VLECs can also carry LPG, which means that if the growing ammonia trade cannot support these newbuilds, rates for VLGCs will suffer. Further, Dorian's one ship on order is ammonia-capable. It will also retrofit three of its existing ships to carry ammonia. The Changing Dynamics of the LPG Market: Terminal Bottlenecks Dorian presents the below slide in its latest earnings presentation. There are two things to note here:  The CFR $/t has remained relatively the same since Q4 2023. Terminalling fees and spot freight have swapped places since Q4 2023 in terms of relative share of the total shipping cost.  I have highlighted the interesting part:   Changing market dynamics (Q3 presentation, p. 5 (annotated by author)) Throughout 2024, terminal fees have increased and are now a much more significant portion of the total cost of shipping LPG from the U.S. Dorian CCO Tim Hansen commented (earnings call): The short supply of spot FOB cargo saw terminal in fees increased dramatically and re-sales of cargoes FOBs also saw large sums exchanged. Ultimately, almost 0.5 million tons less export was seen in July. These increases can be traced to short-term factors like weather and medium-term factors (export capacity). In June and July, Tropical Storm Alberto and Hurricane Beryl, respectively, interrupted exports. This graph, from an LPGas magazine article, uses EIA numbers to explain what has happened over the last few years. The red line represents 2024 exports, while the thick black line represents the commonly accepted theoretical export capacity of 1.8 mpd. Actual exports have steadily approached capacity for years.   U.S. exports, 2019-, EIA numbers (LPGas article) This restriction represents a negative for LPG transporters such as Dorian. In its earnings call, Dorian noted that part of its optimistic outlook is based on new export capacity. Said CEO John Hadjipateras in the earnings call, [the] comment I made about [..] medium-term optimism and amongst other factors, is based on two [..] terminal expansions [..] in the second half of 2025 [and] second half [of] 2026[.] It should also be noted that Dorian's management believes the Panama Canal is more important regarding the share of the east-west arbitrage Dorian can capture. Responding to a question from an analyst on the earnings call, Mr. Hadjipateras responded: I think [..] factors like the efficiency of the canal transits feature more prominently than the export capacity restriction. [..] [T]he reason we haven’t been able to capture [more of the east-west arbitrage is] more to do with the absence of any kind of inefficiencies in fleet utilization, which [..] we saw last year to a great extent, due to the Panama Canal transits. Going into the winter season, Mr. Hadjipateras expects seasonal inefficiencies to re-emerge in the Canal and benefit Dorian: I think it’s reasonable to expect in the next couple of quarters that the canal will become less efficient for VLGCs, because the demand for transits from LNG and containers will increase. Valuation: Share Price Approaching NAV On November 19, an interesting deal occurred in the second-hand market: Peer BW LPG sold its 2007-built BW Cedar for $65 million and purchased 2019-built BW Kizuko for $69.8 million. According to the TradeWinds article, the sale price of BW Cedar was 36 percent above broker Arctic Securities' estimate, which is significant. VesselsValue's monthly report for November reported a VLAC newbuild priced at $125.9 million. In addition, VV reported a 2013-built VLGC fetching $71.5 million in October. These deals provide suitable reference points for the market value of Dorian's fleet. Dorian has 21 owned ships in its fleet. For this calculation, I have assigned the following values to its ships:  One 2007-built vessel: $65 million Nineteen vessels built 2014-2016: $70 million each, $1,330 million in total One 2023-built vessel: $120 million  That brings the estimated value of Dorian's fleet on water to $1,515. Plugging that figure into a NAV calculation yields the following:   NAV calculation Dorian LPG (Author's calculations) Dorian traded around NAV, suggesting that the market has successfully adjusted the price to approximately reflect current asset prices. Risks Oversupply A relatively high amount of new tonnage will come on the water, driven by VLEC/VLAC orders. If the ammonia trade fails to grow as implied by these orders, there might be oversupply in the market, as these vessels can carry other gases. US Export Terminal Capacity As discussed above, export terminals are operating at close to capacity. If new terminals fail to start working, export capacity might be a bottleneck. More Efficient Panama Canal Operations Strange as it sounds, an important driver of rates for LPG shipping has been the unpredictable nature of the Panama Canal. LPG cargoes work on shorter durations than is the case for container ships, which means that they are unable to order slots far in advance. This makes them more susceptible to queues. If the Panama Canal is able to streamline its operations even more, re-using the water for the locks to a larger degree, stable rainfall, etc. rates could remain lower than would otherwise be the case. Other Feedstocks Favored Over LPG in Petchem LPG can be used instead of naphtha when the price is right, but other feedstocks such as ethane can be used by crackers (if the cracker is converted). Significant changes to the pricing patterns of competing feedstocks may change demand for LPG. As the PDH activity in China is an important consumer of LPG, Chinese economic is also important to monitor. Concluding Remarks After a few fantastic years for shipping, several segments have faced headwinds the in the second half of 2024. The general decline in shipping and the specifically LPG shipping spot rates have caused LPG's share price to drop to a healthier level. Market dynamics have soured to some degree during 2024, and the order book continues to grow, adding additional risk to the risk/reward calculation.  Fundamentally, Dorian LPG remains a solid company with very low levels of debt, a large and relatively well-equipped fleet. The recent downward adjustment of asset prices provides a potentially attractive entry point for investors looking to add to their portfolio.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2485418341"}