China’s two big shipping giants report vastly divergent earnings for the third quarter
China’s two shipping giants China Cosco and China Shipping Development announced contrasting third quarter results while analysts warn of a darker fourth quarter.
China Cosco, the flagship division of state-owned China Ocean Shipping Group (COSCO), swung to a net loss of 1.7 billion yuan in the third quarter of calendar 2015, versus a profit of 1.6 billion yuan a year earlier, dragged by the continuous weak performance of its core container and dry bulk shipping sectors. Revenue fell 19 per cent to 14.1 billion yuan.
“The result is lower than our estimates as the downtrend of global economy is faster than expected, ” said CLSA equity analyst Daniel Meng.
China Cosco’s net profit for the first nine months stood at 188 million yuan. The company’s bottom line was bolstered by a 4 billion yuan government subsidy to scrap old vessels in the first half. The company will not receive any government subsidies in the second half of the year.
“It is very likely China Cosco will report a full year loss,” Daniel said. “The third quarter is traditionally peak season for container shipping, [but] the freight rate will decline further in the fourth quarter.”
Slowing global trade and an oversupply of shipping capacity have weighed negatively on the China Containerized Freight Index (CCFI), which tracks spot and contract rates from Chinese ports to the world.
During the third quarter the index average 821.08 points, down 25% from year-earlier levels. Last week it fell to an all-time low of 752 points. The index, which began in 1998 at an initial level of 1,000, fell below 800 in early July for the first time in its history.
China Shipping Development, the bulker and tanker subsidiary of China Shipping Group, reported a net profit of 391 million yuan in the third quarter, up 800 per cent from the same period last year.Revenue grew 9 per cent to 3.44 billion yuan.
For January to September, net profit surged nearly 500 per cent to 745 million yuan.
“The oil price drop and better-than-expected bulk operation likely drove the year on year improvement,” Jefferies’ shipping analyst Johnson Leung wrote in a note.
Dry bulk shipping rates rebounded in the third quarter, helped by China’s restocking of iron ore. However, Johnson said there is no sign that further restocking activities will take place in the current quarter.
Iron ore is seen as an indicator for industrial activity and construction in China.
Shipping consultancy Drewry says the tanker sector is now entering into its seasonally strong winter period, driven by higher crude oil imports by the US, China and Europe.
Daniels cautioned that tanker rates would likely remain depressed as global oil capacity is growing faster than demand.
Shares of China Cosco and China Shipping Development have been halted from trade since August 10 amid merger talks between parent companies COSCO and China Shipping.
A merger plan is expected to be formally announced by the end of this year.
Source: South China Morning Post
Source: South China Morning Post