Recently, the China Ocean Shipping (Group) Company Holdings Company Limited (hereinafter referred as COSCO) issued the financial report of the first half year of 2012. According to the report, the operating profit of COSCO in 1H12 is -3,141,470,191.31 RMB Yuan, dropping by 850.79% YoY; net profit attributed to shareholders of the listed company is -4,871,535,238.54 RMB Yuan, with a drop of 79.72% on YoY basis; earnings per share is -0.48 RMB Yuan, falling by 77.78% compared to last year.
Since the huge deficit of 10.5 billion yuan in 2011, COSCO recorded a loss of 4.87 billion yuan in the first half year of 2012. According to the forecast of the interim result report, the sluggish international trade demand impacted by economic slowdown puts a damper on the growth rate of international shipping market; on the other side, the global shipping enterprises have been nagged by excessive shipping capacity and soaring oil price. COSCO is no exception. Judging from all those factors, COSCO will probably still rank first in the list of money losers in A-share market in 2012.
According to Proposal on Improving the Delisting System of Listed Companies in SSE, COSCO will be given a warning of delisting if it continues to lose money in the second half of 2012. If COSCO keeps in deficit for three consecutive years, COSCO will be suspended for listing; COSCO will be delisted if it still makes loss in the fourth year. There is a little time left in capital market for COSCO as the company made losses in 2011 and probably 2012.
Confronted with uncertain market prospect and constant falls of stock price, managerial members of COSCO have to re-judge the operation strategy and financial status. COSCO announces that the company is mulling a variety of possible solutions to reverse the situation. Securities analysts said, “COSCO can transfer its container business to China Shipping Container Lines Company Limited.” Some holds that bulk cargo business can be sold to its parent company, COSCO Group.
In fact, the feasibility of such two solutions has yet to be considered. First, the profit in the first half year mainly derives from container business, terminal operation and container tank releasing. According to interim report, COSCO has recorded a shipping volume of 3,781,535 TEU, a YoY growth of 16.7% with an income of 20,638,083,705.09 yuan, a YoY increase of 14.8%. The container business makes up 59.6% of main business revenues. Therefore, container business is not dragging behind COSCO. Second, benefiting from the concentration of liner shipping especially container shipping, liner companies have the deciding power to capacity quota plan and freight rate rise so as to relieve the pressure of rising oil price. Thus, discarding container business is not a wise option.
The great loss of COSCO is due to dry bulk cargo business. The first half year has seen a 17.7% YoY decrease of shipping volume and a 32.1% YoY drop of operating revenues. However, is it taken for granted to transfer dry cargo business to COSCO Group? The COSCO Group hold 52.01% shares, top 1 of 10 major shareholders while COSCO Group is 100% controlled by China’s State-owned Assets Supervision and Administration Commission. If dry bulk cargo business is transferred to COSCO Group, it is the Chinese government that bears the risk and loss of asset depreciation, vessel devaluation and low freight rate. Besides, the main business is what company specializes in and makes principal investment. Once formed, such asset will be the source of gains and losses. If COSCO doesn’t devote collected capital to dry bulk cargo business, investment analysis and judgment made by investors will lose the ground.
The great loss of COSCO is somewhat related to its bulk cargo shipping business, whose cargo throughput dropped by 17.7% at the first half year, and operation revenue fell by 32.1% on a year to year basis. However, shall tacit permission be given about “transferring bulk cargo business to COSCO Group” even in such a situation? First, the COSCO Group holds 52.01% of shares and is the top 1 of 10 major shareholders, also, COSCO Group is a large scale state owned enterprise 100% owned by SASAC. Therefore, to transfer bulk cargo business to COSCO Group actually means to ask our country to bear the risks and losses of ship assets depreciation, devaluation of ship price and the depression of freight rate. Second, main operation business usually is the specialty of a company with special investment. Once the special investment is made, the value source or loss source is shaped too. If COSCO cannot use the collected funds to bulk cargo shipping business, the investment analysis and judgment made by investors at earlier stage would make no sense at all.
To sum up, the plans of transferring business above are not practicable. If parent company is not willing to input additional capitals, COSCO has no choice but to sell ship assets to make up the loss. How will COSCO navigate itself in the future? We are looking forward to its performance.
Source: Shipping Community