CITIC Pacific (Hong Kong stock code 0267.HK) is a Hong Kong-based conglomerate which is majority owned by China’s Citic Group in Beijing. Its activities span property, metals and mining, telecoms, and consumer products and its subsidiaries include CITIC Pacific Mining, CITIC Pacific Special Steel and Dah Chong Hong Holdings.
Citic’s interim core profit flat, supported by earnings from property development
Citic, China’s largest conglomerate and the Hong Kong-listed flagship of state-owned Citic Group, aims to expand its non-financial business so that it will be of a similar size to its financial operations, after it completed recently the acquisition of 227 billion yuan (HK$285.4 billion) worth of assets from the parent.
It would also seek overseas expansion in the property business, including in developing nations, chairman Chang Zhenming told reporters after the company posted flat recurring profit for the first half of the year when one-time gains in the same period last yea were excluded.
“[China’s] property market has huge demand, but this cannot be without limit,” he said. “In a few more years, profitability is bound to decline after years of high growth, so we cannot just limit ourselves to China and must expand into the global market.”
Currently, non-financial businesses accounted for 30 per cent of the entire company’s sales after the acquisition, but only 20 per cent of profit, Chang said.
The company, formerly known as Citic Pacific, completed on Monday its acquisition of 100 per cent of the share capital of Citic Ltd and was renamed Citic Ltd.
It was the largest asset injection ever into a red chip – a Hong Kong-registered firm holding mainland Chinese state-owned assets – with the addition of various new businesses to the Hong Kong unit, including banking, stock brokerage, manufacturing and construction.
Performance of the acquired assets will be reflected in the next annual results to be released in March next year.
Citic’s net profit for the first six months of this year fell to HK$2 billion from HK$4.46 billion the same period last year, the company said in a filing with the Hong Kong stock exchange.
Last year’s one-off items included a HK$2.08 billion gain from the sale of a stake in Citic Telecom.
First-half revenue grew 13.1 per cent to HK$46.7 billion this year.
Citic’s share price traded 2.45 per cent higher to end at HK$15.08 on Friday, just off the session peak at HK$15.14.
Net loss from Citic’s partly completed, much-delayed and over-budget US$10 billion Australian iron ore mining and processing project amounted to HK$1.07 billion, 1.2 per cent more than the loss of HK$1.05 billion in the first half of last year.
The project booked first-half revenue of HK$475 million, up from HK$130 million a year earlier. It has sold 1.4 million tonnes of iron ore so far. Six production lines are planned, each with an annual output capacity of 4 million tonnes.
Line 1 was producing but had “yet to reach the desired capacity”, Chang said in the filing. Line 2 is in trial production and work on the remaining four is underway.
Citic’s special steel division posted a 20 per cent fall in net profit to HK$773 million, while net earnings from property development and investment surged 181 per cent to HK$1.17 billion.
Net profit of the energy generation business was flat at HK$874 million, while that of the tunnels operation grew 4 per cent to HK$309 million. Net earnings at trading unit Dah Chong Hong slid 8 per cent to HK$236 million.
Standard Chartered analyst Judy Zhu said in a research report on Thursday that the bank forecast the price of iron ore would average US$87 a tonne in the third quarter before recovering to US$102 in the fourth, compared with US$103 in the second and US$120 in the first.
Zhu cited possible reductions in China’s steel output, tightening of bank lending to iron ore trading firms and continuing growth in Australian iron ore exports as factors for her bearish third-quarter forecast.
Still, Citic president Zhang Jijing said the company believed iron ore prices would be supported by rising demand from urbanisation of developing nations and rising production costs in China.
“Our investment in the Australian iron ore project is very long-term. We don’t focus on short-term price movements,” he said, adding that Citic had made no writedowns on its iron ore assets in its interim results.
Citic’s board proposed an interim dividend of 1.5 HK cent per share.