COSCO H1 losses up on excess capacity

The share price of China COSCO Holdings Co Ltd, the country's largest listed shipping company, slumped the most in about a month in Hong Kong trading after reporting wider first-half losses.

COSCO declined as much as 3.2 percent to HK$3.05 (39 US cents) on Wednesday.

The company's first-half loss widened to 4.87 billion yuan ($770 million) from a deficit of 2.76 billion yuan a year ago due low freight rates and high operating costs.

Its dry-bulk shipping unit widened its loss to 3.42 billion yuan in the first half from 2.7 billion yuan a year earlier. Its container-shipping sector had a loss of 1.3 billion yuan, compared with 947 million yuan a year earlier.

"Excessive shipping capacity will remain the primary challenge" for the dry-bulk sector in the second half of the year, COSCO said in a statement.

It also warned that market competition in the second half of the year may intensify.

Container shipping firms will have less incentive to raise freight rates, and the significant increase in market freight rates in the first half of the year may not be maintained, it said in a filing to the Hong Kong Stock Exchange.

"The low performance of the dry-bulk sector is the major reason for the loss. Container volume has grown, but the freight rate dropped. COSCO might make a profit within this year, but the chances are not big," said Han Yichao, an analyst at Changjiang Securities.

Reuters said the losses have drained COSCO, the fifth-biggest container shipper globally by capacity, of cash and pushed it deeper into debt as it has borrowed to meet higher fuel costs and other operating expenses.

Analysts expect COSCO, which is controlled by State-owned China Ocean Shipping (Group) Co, to stay in the red for the second year in a row in 2012, with few signs of a recovery in the global shipping market.

"Dry-bulk shipping remains in severe oversupply. This situation will not be relieved until 2014," said a report released by China Market Research Reports and Consulting, a financial services platform.

Citigroup Inc analysts Vivian Tao and Alan Wang said that in the container sector, "capacity management needs to be a lot more aggressive in order to restore the demand and supply relationship".

They cut their target price for COSCO to HK$2.59 from HK$3.15, revised their full-year earnings forecast to a loss, and reiterated a "sell" rating.

COSCO is not the only industry player suffering from the severe downturn.

China Merchants Holdings International Co, the investor in ports moving about a third of the nation's containers, reported a 32 percent drop in recurring profit because of lower earnings at a cargo-box making affiliate.

Earnings in the first half fell to HK$1.61 billion ($208 million) from a restated HK$2.38 billion, the Hong Kong-based company said in a filing to the city's stock exchange. Net income tumbled 55 percent to HK$1.76 billion after a year-earlier one-time gain.

China Daily - Bloomberg News