Shipping stocks hit rough waters after loss forecast
Shipping stocks tumbled yesterday following renewed concern about the state of the shipping markets after China Shipping Development warned on Tuesday it would report a first quarter net loss.
The biggest casualty was China Shipping Development, which saw its share price fall by 9 per cent to HK$5.01 in afternoon trade, closing 7.64 per cent down at HK$5.08.
The firm, which focuses on the transport of oil, coal, grain and other bulk commodities, said the loss between January and March was due to insufficient domestic and international cargo demand, an oversupply of ships and rising fuel prices.
The loss was forecast despite a change in accounting practices from January that would extend the estimated life and residual value of its ships, buoying the firm's net result. China Shipping Development said extending the life of its fleet from 17-22 years to 17-25 years would increase net income by 596 million yuan (HK$731.5 million) this year.
Jon Windham, the Asia marine transport analyst at Barclays Capital, said this would account for 40 per cent of China Shipping Development's forecast net profit of 1.5 billion yuan this year. China Shipping Development has also increased the scrap value of its fleet by 2.6 times.
Windham said: 'The accounting change has no material benefit on the underlying business but will increase near-term earnings and reduce the profit from vessel disposals.'
China Shipping Development posted a net profit of 1 billion yuan last year, down 37 per cent compared with 2010, when it reported its annual results last month. Coal accounted for 80 per cent of operating profit in the second half of last year, while oil generated an operating profit of just 79 million yuan between July and December, down 80 per cent compared with the first half of last year.