China Cosco Posts Worse-Than-Expected Loss on Cargo Price

China Cosco Holdings Co. (1919), the nation’s biggest shipping company, reported a worse-than- expected annual loss as dry-bulk rates slumped.
The net loss was 9.56 billion yuan ($1.54 billion), compared with 10.5 billion yuan a year earlier, under domestic accounting standards, the Tianjin-based company said in a Shanghai stock exchange filing yesterday. That is wider than the 7.93 billion-yuan average loss of five analysts’ estimates compiled by Bloomberg. Sales rose 4.6 percent to 72.06 billion yuan.
Chairman Wei Jiafu is restructuring the company’s assets in a bid to return to profitability as a third straight annual loss may result in shares being delisted in Shanghai. The shipping line may raise as much as 27 billion yuan selling assets to its parent, said two people with knowledge of the matter this month.
“All eyes are on their restructuring and turnaround plan,” Kelvin Lau, a Hong Kong-based analyst with Daiwa Securities Group Inc., said before the announcement yesterday. “The loss is not surprising.”
China Cosco plans to sell Cosco Logistics Co. to state- backed parent company China Ocean Shipping (Group) Co. for 6.74 billion yuan, the company said in a separate statement. The sale will give China Cosco a pretax gain of about 1.96 billion in 2013, the company said.
Shares of China Cosco climbed 0.3 percent to HK$3.82 in Hong Kong before the result was announced yesterday.
Chairman’s Apology
“2012 was a very difficult year for China Cosco,” Wei said in the statement, “We apologize for the big loss caused by low rates, high costs and imbalanced fleet structure.”
The company’s main business units include container and dry-bulk shipping, logistics and port terminal operations.
China Cosco last had an annual profit in 2010. According to Shanghai stock exchange rules, companies that post two straight annual losses can be subject to a “special treatment” designation that cuts the daily trading limit for gains or losses to 5 percent from 10 percent. A third consecutive annual loss may result in shares being delisted.
The shipping company said yesterday that gains from the logistics unit sale will boost earnings and reduce the risk of its stock being suspended from trading in Shanghai.
China Cosco’s logistics unit made 796 million yuan operating profit last year on sales of 9.3 billion yuan. Its terminal operations had a 2.39 billion yuan operating profit.
Shipping Rates
The Drewry Hong Kong-Los Angeles 40-foot container rate benchmark jumped 21 percent to $2,213 through last year, according to data compiled by Bloomberg. After climbing to its highest so far this year in February, the benchmark declined to $2,217 in the week started March 19, the data show.
Carriers are expected to raise the rates by $400 on containers going from Asia to the U.S. west coast and by $600 to all other destinations effective April 1, according to Bloomberg Industries.
The dry-bulk vessels had a 6.11 billion yuan of operating loss in 2012 as expansion in the global fleet outpaced China’s demand for coal and iron-ore shipments. The commodities-shipping business had a 14.3 percent decline in traffic to 1.13 trillion ton-nautical miles last year. It had a fleet of 332 dry bulk ships as of Dec. 31, compared with 450 a year earlier.
The company this month said this isn’t a good time to sell the dry-bulk unit because of the current weak market.
Dry Bulk
The Baltic Dry Index, a benchmark for commodity-shipping rates, fell 0.4 percent to 931 points in London on March 26. It slumped to a 25-year low last year.
China Cosco’s container shipping sales rose 18.4 percent to 43.2 billion yuan as volume gained16 percent to 8.02 million boxes and rate improves. Shipping companies including A.P. Moeller-Maersk A/S (MAERSKB)’s container-shipping line, the world’s biggest, have started raising rates to offset higher fuel costs and recover from industrywide losses in 2011 because of a vessel glut.
Still its container shipping unit posted 2.51 billion yuan of operating loss in 2012.
Cosco Pacific Ltd. (1199), the container terminal unit of the company, posted a 12 percent drop in profit last year as a smaller gain from its stake in a container maker outweighed cargo volume growth.
Source: Bloomberg