Ms. Yang Ling (seated), General Manager of COSCO Intl’s Corporate Communications Department with colleague and Senior IR Manager Mr. Wilson Lo. Photo: Andrew Vanburen

COSCO INTERNATIONAL Holdings Ltd (HK: 517), the ship trading, marine insurance brokering, equipment/spare parts supplier and coating products making subsidiary of global giant COSCO Group, expects a big boost to its books with several contracts coming due in the near term.

In a recent meeting with NextInsight, Aries Consulting and several Greater China fund managers, COSCO executives also said the weaker orders and occasional cancellations during the depth of the recent global downturn are now behind the Hong Kong-listed firm.

It was inevitable that 2008 would end with a fizzle as the global economic downturn forced overseas buyers to tighten their pursestrings leaving China’s massive export machine with no one interested in their output, which meant there was a commensurate decline in ship orders.

However, the tumult in global trade in 2008 and 2009 was returning to pre-downturn levels, and COSCO was confident that business would be much more brisk this year.

“There were difficult times in 2008 for sure, but we still managed to remain profitable unlike our competitors. There were eight orders cancelled last year and many were delayed. But over the next year or so a lot of these orders will become due again and we will get a big order book completion boost beginning over the next few months,” said Ms. Yang Ling, General Manager of COSCO International’s ( Corporate Communications Department.

Shipshape Sales Surge: COSCO Intl is expecting a pickup. Photo: 

But the company’s stellar reputation and strong industry ties meant it was less exposed to orders going sour than less established peers.

“We have a long history and enjoy solid relationships with ship owners, so they don’t usually cancel or delay orders. Therefore, we don’t have to layout huge sums for insurance to cover the possibility of cancelled orders. This puts us in a much stronger financial boat than our competitors,” she added.

However, the company was aware that the global economy was going through a transitional period, especially with the current sovereign debt crises in the EU, and it was still not entirely smooth sailing for the ship brokering business.

“However, having said this, we can’t entirely rule out the possibility that there will be more order delays or cancellations going forward,” Ms. Yang added.

Net profit last year was 843.7 mln hkd, up 72% year-on-year.

Revenue in 2009 was 1.63 bln hkd, down 22% year-on-year.

“The decrease was mainly due to an imbalance between demand and supply in the global shipping market as a result of global economic recession and steep decline in international trade, and the sluggish container shipping market negatively impacted the demand for container coatings,” the company said.

Fueling Future Growth
'We have a long history and enjoy solid relationships with ship owners, so they don’t usually cancel or delay orders,' said Ms. Yang Ling, GM of COSCO Intl’s Corporate Communications Department.
Photo: Romil Singh

On the fuel cost side, COSCO International was very creative in managing costs, and had an elaborate and highly effective hedging strategy in place to protect themselves from potential wild fluctuations in the global benchmark oil price.

“We engage in hedging to protect our firm from fuel price volatility. This is done in part thanks to our Sinfeng venture,” she said.

Sinfeng Marine Services Pte Ltd was incorporated in Singapore and became a wholly-owned unit of COSCO International in November 2009.

It is mainly engaged in the provision of marine fuel and services including marine bunker supplies, trading of oil and oil related products and broker services for clients not members of the COSCO Group.

With its office in Singapore, it has established extensive partnerships with renowned oil companies, shipping companies and ship owners around the world, of which most of them have representative offices in the region.

Its business network mainly covers ports in Singapore and Malaysia, as well as other major ports in the Far East areas like Hong Kong and the PRC port cities of Shanghai and Qingdao, and from time to time other main ports globally.

Ms. Yang added that Sinfeng Marine is one of the strategic arms of COSCO International’s expansion into the marine bunker supply services and will be one of the key revenue drivers to the Group.


COSCO Intl 2009 2008 % change
Revenue (hkd) 1.63 bln 2.10 bln (-22%)
Net profit 844 mln 491 mln +72%
EPS (basic) 56.25 cents 33.18 cents +70%
Dividend 9.4 cents 7.4 cents +27%

Sinfeng was not COSCO International’s only fuel-based operation.

Double Rich Ltd became an associated company of COSCO International in April 2009. It is principally engaged in the trading of bunker oil and oil products, and provision of bunker supply services.

Double Rich is partially investing in some companies engaging in the bunker supply and trading of oil products and it is one of the major suppliers of the largest company in China specializing in the supplies of water and oil in the sea, namely China Marine Bunker (Petrochina) Co Ltd.

Double Rich has a relatively large customer and sales network in the industry and has established extensive and good business partnership with renowned oil companies, shipping companies and ship owners around the world.

COSCO Intl in hkd
Market cap 6.1 bln
Last price 4.05
52-wk range 2.91-5.18
P/E 7.2x
Dividend yield 1.83%

Ms. Yang was asked shipowners were seeing a more even fill-rate for container vessels plying the China-EU route or the China-North American route, as now that China is booming and the West is enduring a protracted slowdown, EU and US exporters might be sending more containers of manufactured goods China’s way, and thus making two-way travel across the oceans more profitable for container ships.

“There are more exports from the US and the EU to China. It was only recently that China reported a rare monthly trade deficit in fact. But there won’t be a huge change. We still see mainly full container ships heading out of China, and then returning just 30% full. This is only a slight increase from a year ago.”

COSCO International has been listed in Hong Kong since February 1992. The company became a subsidiary of COSCO (Hong Kong) Group Ltd in July 1997 and was renamed to its present name.

COSCO (Hong Kong) Group Ltd is a wholly-owned subsidiary of China Ocean Shipping (Group) Co (COSCO). As of end-year 2009, the total asset value and net asset value of the Group was about 7.5 bln hkd and 6.4 bln hkd, respectively, and the total number of shares in issue was approximately 1.51 bln.

To become a specialized, unique and leading shipping services provider, COSCO International has obtained full support from COSCO in the past few years and has positioned itself on shipping services as its core business.

See also: YANGZIJIANG SHIPBUILDING: A penny saved...

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