Cosco International seeks acquisitions to boost profits

Services arm of China's largest shipping firm, armed with HK$5.5b in cash, aims to buy businesses that will boost its bottom line

PUBLISHED : Thursday, 23 August, 2012, 12:00am
UPDATED : Thursday, 23 August, 2012, 2:13am

Cash-rich Cosco International, the shipping services offshoot of China's largest shipping firm Cosco, is eyeing acquisitions both inside and outside its parent as it seeks to develop synergies with existing businesses.

Chairman Ye Weilong said: "Several potential acquisitions are now under intensive study" following a detailed assessment of its various businesses, which include marine fuel trading, marine paint manufacture and supply, marine equipment, ship trading and insurance.

"We'll focus on shipping services," Ye said, adding the firm had net cash reserves of HK$5.5 billion as of the end of June.

Xu Zhengjun, the firm's managing director, said: "The potential targets can give us higher profitability."

They avoided commenting on the progress of talks to acquire marine fuels company China Marine Bunker (PetroChina) from parent Cosco, which owns 50 per cent of Chimbusco. Cosco International has never formally named Chimbusco as the target, but it said in August 2010 that it was exploring the possible acquisition of a bunker oil supplier and other businesses from the parent. Chimbusco, a 50-50 joint venture between Cosco Group and PetroChina, is the only bunker oil supplier controlled by the parent.

On the Chimbusco deal, Ye said there was "no fixed timetable" for the acquisition of a bunker supplier either from Cosco or outside the company.

Analysts said the lack of acquisitions despite having cash had hit investor sentiment, with the share pricing falling from HK$4.19 on August 1 last year to HK$2.96 at yesterday's close.

This included a 3.58 per cent drop yesterday after the firm reported a 1 per cent fall in net profit to HK$232.42 million in the first six months of this year from the same period last year. Revenue fell 21 per cent to HK$4.48 billion between January and June, against HK$5.7 billion in the same period in 2011.

Net profit was buoyed by a 28 per cent reduction in selling, administration and general expenses to HK$210.4 million, plus a 36 per cent increase to HK$62.3 million on interest income from its cash reserves.

The biggest revenue earner was the marine fuel trading and supply business, which contributed HK$2.95 billion to total revenue in the first half, down 19 per cent compared with HK$3.63 billion last year. But profitability was driven by the marine paints division, which generated HK$114.2 million to total pre-tax profit of HK$305.1 million, although it fell 28 per cent year on year.

Xu said the weak global shipping market affected the firm's shipping businesses with increased profitability at the marine fuel and insurance operations, while profitability declined at the paints, marine equipment and ship trading divisions.