China’s Cosco Shipping Ports posts 70 per cent jump in adjusted profit in first half, but braces for trade war impact

Trade war has had ‘mild’ impact so far on container terminal operator, but it is weighing possible plays in Southeast Asia and South Asia should fallout intensify.

PUBLISHED : Monday, 27 August, 2018, 7:01pm
UPDATED : Monday, 27 August, 2018, 7:12pm

Cosco Shipping Ports (CSP), one of the world’s largest container terminal operators, said the impact of the US-China trade war has so far been “mild” on the company, as it posted a 70 per cent jump in adjusted profit for the first six months of the year.

But the company said it expects the impact could be greater if the trade war continues, potentially causing shipments to move from China to Southeast Asia and South Asia.

Adjusted net profit for the company reached US$169 million in the first half of the year, beating market forecasts, up from last year’s US$99.3 million if excluding one-off items from the Qingdao Port International transaction. Revenues increased 80 per cent year on year to US$495.5 million for the company, which is owned by China’s Cosco Group.

Total throughput – the amount of containers handled – rose 27 per cent over the six months to 56.7 million teus (twenty-foot equivalent units).

“The trade war impact is relatively mild [on our business] so far, as we have limited exposure to US trade,” Zhang Wei, vice-chairman and managing director for the Hong Kong-based port operator, said at a press conference on Monday.

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The company is “cautiously positive” about the outlook of the second half, expecting low teens growth in throughput for fiscal 2018.

CSP has 10 trade lanes to the US at two Chinese ports – Xiamen and Nansha. The products shipped on these lanes are mainly apparel, home products and home electronic appliances, which are not on current US tariff lists.

But Zhang said the trade conflict threatens to cloud the overall economic outlook and affect its business in the longer term.

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“Some products could be on the US’s next tariff lists, ” Zhang said. “As much as 10 per cent of shipments at our ports are related to US trade. They could be affected [by the trade war] eventually.”

He said CSP has started taking precautions against any negative fallout from trade war, including optimising the cost structure and enhancing operational efficiency.

Zhang also expected the trade conflict, coupled with China’s long-term national strategy to upgrade its industrial sector, could cause trade to gravitate from China to Southeast Asia and South Asia.

“We are closely watching how the shipping volumes may change or shift, and may seek potential investment opportunities in those regions [Southeast Asia and South Asia], ” he said.

Still, given the market uncertainties, CSP has cut the capital expenditure planned for fiscal 2018 to US$750.9 million, from the previous US$3.32 billion.

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Zhang expected the capital expenditure in fiscal 2019 to be below US$1.2 billion.

According to CSP, the company will also start the trial operation of Abu Dhabi Terminal by the end of 2018 and commence operation in the first quarter of 2019. The terminal, which CSP has invested around US$400 million in building, has annual designed capacity of 2.5 million teus.

As of March, CSP operated 180 container berths in 35 ports worldwide that were handling 104 million teus a year.

Meanwhile, Morgan Stanley, in a research report on Monday, said it expects CSP will see a slowdown in throughput in the second half of the year.

The analysts also expected the company to face pressure in profitability due to the trade tensions. The bank maintained an underperform rating for the stock, with a target price of HK$7.04.

CSP rose 2.4 per cent to close at HK$7.63 on Monday.

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