In the latest earnings call, NYK Group (ticker NYK) disclosed its financial performance for the third quarter of fiscal year 2023. CFO Akira Kono reported a downturn in cumulative revenues and profits in comparison to the previous year. The Liner and Logistics segment, including key operations such as Ocean Network Express and Air Cargo Transportation, faced reduced revenues and profits due to weaker market conditions. Conversely, the Energy segment showed positive results, supported by long-term contracts. Looking ahead, NYK Group anticipates increased revenue and recurring profit for the Liner & Logistics and Bulk Shipping segments by the end of fiscal 2023. The company is actively engaged in a share buyback program with plans to retire the repurchased shares.
Key Takeaways
- NYK Group's cumulative revenues and profits have declined year-over-year.
- Liner and Logistics segment, including Ocean Network Express, underperformed due to softer market demand.
- The Energy segment, encompassing LNG and Ocean business, reported favorable outcomes.
- Full-year forecast suggests an uptick in revenue and recurring profit for certain segments.
- Share buybacks are underway, with the company intending to retire all repurchased shares.
- NYK Group is contemplating additional returns to shareholders, details to be announced with full-year results.
Company Outlook
- Expectation of higher revenue and recurring profit for the fiscal year across Liner & Logistics and Bulk Shipping.
- Additional shareholder returns are under consideration.
Bearish Highlights
- Decrease in revenues and profits across most business segments.
- Unfavorable market conditions in forwarding business, with a projected slowdown in Q4.
- Underperformance in the dry bulk markets.
Bullish Highlights
- Energy business performance bolstered by long-term contracts.
- Improvement in the unit price of freight, despite margins not keeping pace.
Misses
- Liner and Logistics business did not meet revenue and profit expectations.
- No full recovery yet in ocean and air cargo business.
- Margins in freight have not improved in line with the unit price increase.
Q&A Highlights
- Discussion on the impact of Panama Canal restrictions and cargo situation.
- Anticipation of increased demand in air transportation, though customers are not in a hurry to switch to air cargo.
- Follow-up questions to be handled by the IR group.
During the call, NYK Group also touched on various operational aspects, including methodological changes in segment reporting, a decrease in expenses and earnings across segments, and progress against their medium-term management plan. The company addressed the minimal impact of Panama Canal restrictions on their business and shared forecasts for free cash flow. The performance of the ocean and air cargo business was scrutinized, noting a delay in margin improvement despite better freight unit prices. The market outlook for the forwarding business remains challenging, with an expected slowdown in the fourth quarter. NYK Group concluded the call by directing any further inquiries to their Investor Relations group.
InvestingPro Insights
In the wake of NYK Group's latest earnings call, the InvestingPro data and tips provide a deeper understanding of the company's market position and future prospects. According to InvestingPro Tips, NYK Group's stock has seen a notable decline over the past week. However, the valuation suggests a strong free cash flow yield, indicating potential for investor returns. Additionally, the company is trading at a low earnings multiple, which could signal an undervalued stock to savvy investors.
From a data perspective, NYK Group's market capitalization stands at $14.5 billion, reflecting the company's substantial size within the Marine Transportation industry. The P/E ratio is currently at 9.93, which is relatively low compared to some industry peers, hinting at a potentially attractive valuation for investors. However, the revenue growth has seen a decline of 11.3% over the last twelve months as of Q3 2024, aligning with the company's reported downturn in cumulative revenues and profits.
InvestingPro also notes that while analysts anticipate a sales decline in the current year, NYK Group remains a prominent player in its industry and has been profitable over the last twelve months. This profitability, paired with the company's strong free cash flow yield, may interest investors looking for stable returns in the long term. For those interested in further insights, InvestingPro offers additional tips for NYK Group, which can be accessed at https://www.investing.com/pro/NPNYY. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking even more valuable information to guide investment decisions.
Full transcript - Nippon Yusen Kabushiki Kaisha (NPNYY) Q3 2023:
Yasuaki Okada: Thank you very much for your patience. Thank you very much for taking your precious time to attend this session. We will now like to begin NYK Group. Third quarter results for fiscal 2023. I am your MC for today. My name Yasuaki Okada, General Manager of IR Group. Please bear with me. First of all, I would like to introduce the presenters for today. We have Representative Director, Executive President and Executive Officer, CFO, Mr. Kono. We also have Managing Executive Officer, Chief Executive of Liner and Logistics headquarters, Mr. Banno. First, our CFO, Mr. Kono will begin with the overview of the third quarter results for the fiscal 2023, followed by a Q&A session. I would like to explain how to raise questions later. The materials to be used for today's presentation are already posted on the home page of the company. Please take a look at them. Please be advised that this session, including the Q&A session will be distributed for online distribution. Now we would like to move on to the presentation. Mr. Kono the floor is yours.
Akira Kono: Hello. This is Kono, CFO of the company. Thank you very much for taking your precious time to attend our presentation session today. For today, I would like to begin with the overview of the financial results for the third -- first 3 quarters of fiscal 2023 and then, after that, we would like to provide you with the full year guidance, full year forecast for fiscal 2023. After I finish my presentation, I would like to open the floor for a Q&A session. The materials to be used for today's presentation will be projected on the screen. However, you have already downloaded the material from the homepage, please make them ready at your hand. First of all, regarding the overview of the results for the first 3 quarters of fiscal 2023, if you can open the table on Page 6, the blue column second from the right show the cumulative results through the first 3 quarters, including the first half results. In the first 3 quarters, including the first half, the cumulative revenues decreased by JPY 260.9 billion year-on-year to JPY 1,789.2 billion. Recurring profit decreased by JPY 805.6 billion to JPY 202 billion, and net income dropped by JPY 766.7 billion year-on-year to JPY 153.5 billion. So we recorded a decrease in both revenues and profit. As for the overview, as similar to the trend in the first half of the year, in the line and Logistics business, which comprises Ocean Network Express, Air Cargo Transportation and liner logistics business that showed a strong performance last year. This business recorded a decrease in both revenues and profit as a result of freight rates and handling volume dropping compared to the last fiscal year due to looser supply and demand conditions and also because of the dry mark markets underperformed in the same period of last fiscal year. On Page 7, you see the results by segment. Here again, the columns -- the second column from the right in blue are the results for the first 3 quarters. As for recurring profit of Liner and Logistics business, which comprises liner, air cargo transportation and logistics, liner trade dropped by JPY 682.8 billion year-on-year to JPY 45.3 billion. Air cargo transportation dropped by JPY 50.9 billion year-on-year to JPY 5.2 billion. And logistics was down by JPY 29.1 billion year-on-year and came in at JPY 21 billion. Each of these businesses were affected by the decline in transportation demand. In particular, in the Liner Trade business, OEE suffered from a sluggish cargo demand due to interest rate hikes and inflation in Europe and America as well as the increased shipping capacity resulting from the completion of new vessels which caused the spot rates to decline further from the first half of the year. Consequently, we recorded net losses for the third quarter and the results came in lower compared to our previous forecast. And in air cargo transportation business, in addition to the reduction in cargo shipment, because of the increased supply of space due to resumption of international passenger flights, we recorded a year-on-year decrease in unit freight level. However, in the third quarter, because of the steady demand for e-commerce-related cargo for North America, the revenue for the third quarter came in higher than our previous forecast. In logistics business, Air and Ocean Cargo recorded a significant decline in revenue year-on-year because the market fell due to weak cargo volumes. However, Contract Logistics business was steady, supported by the strong cargo traffic in the e-commerce and automotive industries. Consequently, liner and Logistics business overall recorded a recurring profit of JPY 71.7 billion, which was down JPY 762.9 billion year-on-year. In Bulk Shipping, recurring profit decreased by JPY 35.7 billion year-on-year to JPY 137.4 billion, of which dry bulk business has seen a recovery in the Capesize market towards the end of the year. However, Panamax size underperformed the same period of last fiscal year when the market was very strong. On the other hand, in automotive, risk transportation demand continued since the second half of last year. In addition, because of the congestion of ports and the limitation of ships passing the Panama Canal, the supply-demand situation remained tight. In Energy business, LNG and Ocean business were favorable with the support of long-term contracts. And in fact, the VLCC market improved as this was the peak season and VLGC also recorded further increase in revenues due to favorable market conditions, making positive contribution to overall revenues. If you could go back to Page 3. Here again, overall recurring profit was JPY 202 billion down JPY 805.6 billion. After adjusting for the extraordinary losses and taxes, net income came in at JPY 153.5 billion, down JPY 766.7 billion year-on-year. As for the share -- the acquisition of treasury shares, which we commenced on August 4 we have completed a repurchase of 36, 950,100 shares as of January 31 and a total cost of approximately JPY 142 billion. Next, on Page 8. As you can see on the table on the left, the JPY 805 billion year-on-year decrease in recurring profit was mainly due to the drop of the liner market and the decline of the freight rate and handling volume in the Air Cargo Transportation business, which negatively affected the overall liner and logistics business. So that was the key factor. So that was the overview of the first 3 quarters of fiscal 2023. Next, I'd like to explain about full year forecast for 2023 fiscal year. Please look at Page 9. Compared to the previous forecast at the first half results announcement in November, the revenue forecast of the full year basis was up JPY 60 billion at JPY 2,340 billion. The recurring profit is up -- is up by JPY 10 billion at JPY 245 billion. And as to the net income, the timing of NCA share transfer and transition of overseas terminals ONE have been changed. And because of that, net income has been revised down by JPY 20 billion to JPY 200 billion. As I'm going to touch upon later when I talk about segments, against the previous Liner & Logistics was revised up by JPY 6.5 billion. And for the Bulk Shipping was revised up by JPY 5 billion and these are recurring profits. And this is because of the robust automotive VLCC and VLGC market. On Page 12, we have profits, ForEx, bunker oil prices the assumptions for these numbers, please look at them as well. Based on these numbers, dividend payout ratio is as follows: buying the payout ratio of about 30%. The year-end dividend remains unchanged at JPY 70 combined with interim dividend of JPY 60, the annual dividend payout per share will be JPY 130. And as I touch upon when I talked about third quarter of the results, we are currently buying back of our shares. The JPY 130 per share forecast as well as JPY 142 billion, the shares already bought as of January 31, total shareholders' return ratio is at this moment, about 103%. And all the shares that we have on the board at back will be eliminated. Next, I'd like to talk about each segment's full year forecast and the comparison with the previous forecast. Please look at Page 14. The blue column in the middle is the revised forecast for FY 2023. Starting with Liner trade. It's recurring profit is revised up by JPY 3 billion over the previous forecast to JPY 60 billion. The continued vessel business environment saw in the third quarter, relaxing of demand and supply situation and the spot rates went down and aggravated the earnings. But at this moment, although the supply of newly via vessel continues Panama canal or passing restrictions due to C-level and the impact of the Red Sea situation is tightening space demand and supply. With these factors included to some extent, we expect improvement in the earnings in the fourth quarter. Moving on to air cargo transportation. As we announced the other day, share exchanges between NCA and Ana Holdings has been changed to April 1 this year. Therefore, the results of this fiscal year, including the fourth quarter will be reflected in our company's consolidated results. The fourth quarter because of seasonal reason is expected to be slow. But contributed by the improvement in the results in the second quarter. On a full year basis, we expect increase in profit over the previous forecast. Moving on to logistics. It has been revised up by JPY 500 million over the previous forecast at JPY 24 billion. This is recurring profit. And both for ocean freight and air freight the demand are slow and handling volume is expected to decrease compared to the previous forecast. Meanwhile, contract logistics contributed by firm demand in Europe and America will be propped up in its earnings. Bulk Shipping business. Over the previous forecast, Recurring profit is revised up by JPY 5 billion to JPY 170 billion. There's some transportation demand of automotive business is expected to remain strong supported by complete car production recovery and from sales in key countries, given for the congestion and the Panama Canal passing restrictions and Red Sea situation, we will capture demand through optimal vessel deployment and effective operation. [Indiscernible] business was impacted by the stagnant Chinese economy until the end of the first half. But in the third quarter, the Capesize and other vessel types, so improvement and the market condition improved. So we have revised up the market assumptions for the fourth quarter. In the Energy business, LNG vessel and offshore business has been supported by mid- to long-term contracts, and we expect a very firm result, VLCC and VLGC forecast remain intact. Going back by one page, on Page 13, we have year-on-year Permison table. So please take a look at them as well. As shown in footnote in this fiscal year, we changed the calculation method for segment-wise items, including interest. To facilitate year-on-year comparison, we changed -- we have translated last year's results to the new calculation basis. The major changes there are other sentiments expenses decreased. And along with that, each business segment earnings decreased. That is for the full year forecast for FY 2023. In our homepage, do we have the slide pages that we are showing today. And we also have a pend, which includes preference materials, including assumptions for each segment. Please refer to them as well. Lastly, please look at Page 15. In March last year, we announced our medium-term management plan, sell green, drive transformation 2026. And in its financial strategies, we have considered ROIC as target management KPI as well as ROE. Financial metrics to measure efficiency of shareholders' capital very important. Since last year, that TSE encouraged businesses to be more cautious of capital cost and share prices in their business operations. And we believe that we can satisfy their requests by promoting our financial strategies in our midterm plan. But here, we have one slide to summarize our thoughts because we are also focusing on the PD [indiscernible] midterm plan has not touched upon to make improvements. We are making progress against our midterm plan in line with our plan. And as to the details, we are going to share them with you when we announce 2023 fiscal year full year results in May this year. And with that, I would like to conclude my explanation. Thank you.
A - Takaya Soga: Thank you very much. Now we would like to move on to the Q&A session. [Operator Instructions].
Operator: Two questions. I have 2 questions. First, for the October-December period, the foreign exchange gains and loss. I think there was a significant impact of about JPY 20 billion or so. What is the reason behind this? Can you elaborate on the background of this foreign exchange gain and loss? And how does this impact which part of your business. And my second question is that if I look at the other two companies, the passage restrictions in the Panama Canal, there seems to have been some impact on the PO. But what is your case? Can you elaborate on that point, the impact of Panama?
Akira Kono: Thank you very much, sir, for your question. Now I would like to answer your question. The first question regarding the foreign exchange gains and loss, that was about JPY 20 billion or so, slightly less than JPY 20 billion and how did that impact our business? The unreceived receivables, based on the balance of that receivable, the impact will be -- will vary. In addition to that, the currency hedge cost has increased. And those were the major factors behind this number. Because we have to apply a certain amount of foreign exchange hedge and because the interest gap between U.S. and Japan widening, that also had a very -- had an impact. My -- the second question, Panama Canal restriction of passage, how did that impact our business? As far as dry bulk is concerned, the impact was minimal, if any, according to how we see it. On the other hand, this has an impact on containers, especially the OEE part and also the automotive vessels. For the third quarter, this is already reflected in the actual numbers. So we have seen little impact from the Panama restriction. So you can -- that's how you should interpret the numbers. For the containers because the freight started to rise towards the end of the fiscal -- towards the end of December because this was partly affected by the Panama Canal passage restriction according to our interpretation. And that is already reflected to some extent in our actual numbers. As for automotive vessels, for East Coast of the United States, they have to -- because not being able to go through the Panama channel, there was a certain impact. But as I said, we are trying to efficiently allocate the ship. And by doing so, we are trying to minimize the impact on our P&L. And we have been able to access to successfully curve that impact so far? And that's all for myself. Thank you. Did I answer your question?
Operator: Yes. A follow-up question. Regarding the bulk shipping, there was a JPY 34.3 billion as of the end of December coming down from JPY 40 billion. Was this because of the foreign exchange gains and losses. And was this significantly affected by the Panama Canal restrictions? Or was that due to some other reasons? Market conditions, for example, Automotive and energy they -- there were not so many irregular factors for that part. But in the dry bulk, to a certain extent, the forward freights were hedged to some extent. So the foreign exchange impact. And together with the foreign exchange impact, the market -- with the market conditions improving, the hedge evaluation losses will manifest itself. So that's included in the numbers there.
Unidentified Analyst: I have one question. For this fiscal year, free cash flow, what is your latest forecast for this year's freeze free cash flow? Interim results according to about JPY 82 billion upward the revision was expected compared to the initial forecast. About the timing of selling your assets has been postponed, and there have been some factors to impact on the free cash flow. I think that the final cash flow will be better than the initial forecast. If there's any other comment that you can make at the moment, please?
Akira Kono: Thank you for the question. As to free cash flow, Operating cash flow is steady at earnings are increasing. As to investment cash flow, since the timing regarding NCA is postponed. So as I mentioned earlier, so the sales of overseas terminals will come only in the next fiscal year. So that is the change of the timing. The early point next year, we'll see the selling of those assets. But for this fiscal year, we will not have expected the cash in, which would have come from the sales of assets. At this moment, we do not have the details here, but -- so it's not going to have the big -- the impact aside that asset sales timing change. And we would like to explain about that at an appropriate timing. Thank you.
Unidentified Analyst: So basically, you are going to look at the cash flow year after year, and you are going to think about it if it's possible to add more shareholders' return. Am I right?
Akira Kono: As we explained about it last time for this fiscal year, by the end of April, the JPY 200 billion being the ceiling that we are buying our own shares. And looking at the free cash flow going forward, we will continue to think about additional shareholders' return next year and onwards. Thank you.
Operator: Thank you very much for the question. Now moving on to the next question. So I would like to nominate a person who has raised hand. Please mute your microphone and begin your question.
Unidentified Analyst: I have an additional question. For the January to March period, I would like to ask a question regarding your assumption for your plan. For the bulk shipping, the profit level seems to be the same as the October to December period and foreign exchange, you said that you had some reservations. So I don't think this will no longer be a factor for the January-March period. So why is there a difference between [indiscernible] improvement and also the registry business, the profit is coming down. And also the Air Transportation business, I'm sure that there was an e-commerce factor. So that has made an improvement in the December quarter, but this is projected to make losses in the January, March period. Why is this?
Akira Kono: First of all, for the air transport business, in the fourth quarter, in addition to seasonal factors, we also have to incur maintenance costs in the fourth quarter. So because of the [indiscernible] factor compared to the third quarter, we are projecting a decline. So if we exclude this regular factor of maintenance cost, the drop in the fourth quarter will be smaller or be milder. So that's how you should interpret the numbers. Also, regarding the valuation of foreign exchange, you are right in that dry bulk in the fourth quarter, we are expecting some recovery to some extent. But on the other hand, then from next fiscal year onwards, the foreign exchange reservation, we are making some hedges on foreign exchange, and that evaluation has to be -- can only -- we can only know about the valuations only after March. So how will that turn out to be something that we don't know yet.
Unidentified Analyst: Okay. Thank you. And also what about logistics business, the logistics.
Akira Kono: Of course, Mr. Banno can add some comments later. But for ocean and also air cargo, the handling volume in terms of quantity -- well, actually, the unit price of freight. Freight rate has been improving with our ocean freight, but the margin has not caught up yet. So we are taking longer time than effected for catching up. Mr. Banno, if you have any additional comments, please make some comments.
Takuji Banno: Yes, as Mr. Kono mentioned already, if you compare third quarter with the fourth quarter for the forwarding business, overall, the market conditions remain unfavorable. So therefore, the sluggishness remains persistent. Contract Logistics business is going to change dramatically because in the third quarter, NYK has been quite strong in transport business, and we were able to handle a lot of cargo. So that translated into gains in the third quarter. However, in the fourth quarter, after the new year, we are seeing some slowdown. And therefore, this will appear as weakness in the fourth quarter. So compared to the third quarter, I think things will be slower in the fourth quarter.
Unidentified Analyst: Thank you I have an additional question. It's not about the results. The Swiss canal and Panama Canal, the impact has shifted and the continuous schedules and cargo, which is left unloaded. Could you please talk about some update on the cargo situation? And also how your clients, customers are dealing with them? and forwarding business, I think there must be some handling process about the current situation.
Takaya Soga: So Banno is going to explain about it.
Takuji Banno: Thank you for the question. Panama Canal, from the end of last year, the impact has been merging especially for the East Coast of North America, it has been the change to the Swiss canal. And coming into this year, now the Swiss Canal, there's no passing there either. So the -- it is getting a longer haul the transportation on both sides. And around [indiscernible] the cargo movements were not so good. And as for ONE for North America and for Europe, we have discontinued lots. And as a result of that, there's some -- the vessels left not being used. And now we are fulfilling the longer loops with those vessels. We are currently recovering going back to the complete weekly services. That is the current situation. We are not seeing any complete recovery yet. And now it is getting the longer distance. So the air transportation demand is expected to rise. But 2 years ago, we had the pandemic and the current situation is different. The vessel itself, the ocean transportation itself is not completely imply, but it's not that the space is becoming tighter. The customers have space. In some cases, especially for production parts, the inventory might be low in some places. But it's not the case that the customers are hassling to use air cargo to transport their parts. That's not the situation.
Operator: Moving on to the next question. Are there any questions? If we do not have any questions, although it is slightly earlier than scheduled time to finish the meeting we would like to finish this session at this juncture. If you have any follow-up questions later, you are welcome to send them to the IR group. All right. Thank you. With this, we would like to finish the Q&A session. Thank you very much. With this, we would like to finish the 2023 3rd quarter results presentation session. Thank you very much once again for your participation.
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