Full steam ahead

PUBLISHED : Wednesday, 26 April, 1995, 12:00am
UPDATED : Wednesday, 26 April, 1995, 12:00am

SHANGHAI Hai Xing Shipping achieved a 41 per cent increase in 1994 net profits after settling the controversy over its Hong Kong flotation.

Hai Xing's business grows as the economy does.

The rise in earnings was a reflection of global economic recovery. It also marked strong domestic demand for crude oil, seen in the robust earnings growth of Shanghai Petrochemical and Zhenhai Refining, which both process crude oil along the eastern coast. But The Shanghai-based company is not without concerns.

Worries on the cost side include the company paying more for fuel and higher depreciation charges for 22 new vessels coming into service.

Hai Xing will have to pay more in income tax this year.

Last year, Hai Xing paid 114.74 million yuan (about HK$105.21 million) in tax with an effective income tax rate at 24 per cent, despite the official tax rate being 33 per cent.

The company was able to pay less as losses from other divisions of its parent and state-owned enterprise Shanghai Shipping (Group) were included in the calculation of its total assessable profits.

Hai Xing would have had to pay an additional 45.44 million yuan income tax last year if the losses were excluded. The company has lost this privilege.

In January, the Shanghai Taxation Bureau issued a registration certificate stipulating that the company would be subject to income tax as an independent legal entity.

On the price side, the domestic shipping freight rate, which is already below market prices, is likely to be capped.

With the consumer price index still running above 20 per cent, Hai Xing is unlikely to raise the freight rate. Any increase would run counter to the government's efforts to control inflation.

Hai Xing's ability to achieve earnings growth this year depends on two things - effective cost control and an expansion of cargo handling capacity.