China Merchants Group

China Merchants profit to strengthen in 2nd half

PUBLISHED : Friday, 30 August, 2013, 12:00am
UPDATED : Friday, 30 August, 2013, 3:40am

China Merchants Holdings (International) - which saw net profit jump 10.2 per cent to HK$1.94 billion in the first six months of the year - expects to perform even better during the second half, as two acquisitions start to contribute to its bottom line.

Falling container throughput in its home-base ports in Shenzhen West dragged the growth rate down at the group's mainland ports to 6 per cent in the first half, as compared to national growth of 8.6 per cent. But Li Jianhong, the group's executive vice-chairman, said income from its investments in Terminal Link - a port network that covers 15 container terminals in eight countries - and another port in Djibouti, East Africa, would be booked during the second half.

Managing director Hu Jianhua said the group's investment in a US$500 million mega-port in Colombo, Sri Lanka, which opened earlier this month, would endure start-up losses, but he expected the project to break even in two years.

[The new port in Sri Lanka] should capture a lot of cargoes from South Asia

"The two-year estimate assumes the port will operate at just half of its capacity in handling 2.4 million 20-foot containers (teu), but of course it will do better than that, with the port located midway on an east-west sea route and it should capture a lot of cargoes from South Asia," Hu said.

The three acquisitions completed this year are only the beginning of the group's expansion plans abroad. Developing or buying ports in key locations has grown in importance, with the world's three largest shipping lines, Maersk Line, MSC and CMA CGM, having formed a so-called P3 alliance to share vessels and bargain on prices amid the global shipping downturn.

"The P3 alliance has put price pressure on our ports, but the impact was different on different ports," Hu said. "Hub ports, for example, are actually open to more opportunities following the consolidation."

With factories moving out of the Pearl River Delta, causing a drop in trade volume and demand for containers, the boxes handled by the group's ports in Shenzhen West edged down 1.2 per cent to 5.62 million teu in the first half, with a price war waged by smaller ports in the neighbourhood adding to the toll.

The company said the mainland's port industry was expected to slow in the near term, with global economic growth unlikely to rebound sharply due to slowing export growth in China and other emerging economies. Cosco Pacific, another major port operator on the mainland, said on Tuesday that profit at its terminal business dropped 5 per cent year on year to US$92.8 million in the first half on increased tax and losses at its new port in Xiamen.