Singamas Container recovery delayed to 2015 as profit falls
The company is banking on rising demand for special containers amid strong US consumption
The recovery that Singamas Container had projected for the second half of this year may not come until 2015 as slow trade and falling profits of shipping lines hurt demand and pushed the group's net profit down 28 per cent to US$27.5 million in the first half.
But the world's second-largest marine container maker said strengthening consumption in the United States would help boost demand for special containers such as refrigerated containers or the 53-foot boxes used on US roads - which cost twice as much as the standard 20-foot container and offers better profit margins.
While the Singapore-based company now expects growth to stay flat this year, chairman and chief executive Teo Siong-seng said the lull would provide it opportunities to speed up expansion on the more profitable special containers. He said these containers, which account for just 22 per cent of the company's revenue, should contribute between 40 and 50 per cent in two to three years.
"US shippers are using bigger boxes as there is a shortage of truck drivers in the country," Teo said. "Meanwhile items that used to be airfreight cargo like asparagus and strawberries can now be delivered at sea due to the advancement in technology. We see a big demand there."
The company is restructuring its 13 production plants in the mainland over slowing demand in the Pearl River Delta as factories migrate out of the region. In May, Singamas disposed of a 20-year-old plant in Shunde, Guangdong, and redeployed it in Huizhou and Shanghai.
Its chief financial officer, Rebecca Chung, said it will also consider closing another of its ageing factories in Yixing, when its new production base in Qidong - which began rolling out special containers in April - achieves full capacity.
Teo said the company maintained a gross profit margin of 12 per cent even as container box prices slipped another 6.7 per cent to an average of US$2,287.
"The rebound we expected in the second quarter, a traditional high season, didn't happen as exports slowed in China and Europe while steel prices - a major raw material for the boxes - also fell. Shipping lines that saw bad financial results delayed their plans to replace old containers."
But as most of the boxes purchased during the shipping trade boom in 2005 were due for replacement, and up to 4 million teu of new container vessels will be delivered in the next three years, Teo said he expected demand and prices of containers to resume growth.
Shipping lines expect the sector to bottom out next year, but there will be a time lag before container box makers begin to reap the benefits of recovery, which is why Teo expects a turnaround for the company only around 2015.
Singamas offered an interim dividend of 3 HK cents. Its share price closed 1.12 per cent lower at HK$1.76 yesterday.