The Straits Times / The Business Times News on Cosco

Sticking to the tried and true, at least for now

FOR the next couple of years at least, Cosco Corp will continue to focus and build on its core businesses through organic growth and strategic acquisitions, says its president, Ji Hai Sheng.

'I think we are definitely going forward in a similar direction. Only concentrating on our core businesses. We will not try to do anything else,' he says.

Cosco Corp has three main businesses. Dry bulk shipping, shiprepair and marine engineering, and shipping agency, representing the entire Cosco Group.

Smooth sailing: Cosco Corp will continue to expand by strengthening its shipping and shiprepair and engineering businesses through organic growth and acquisition.

The shiprepair and marine engineering business, in particular, have huge potential, given the continuing expansion of world trade and high oil prices.

'As world trade continues to grow, more and more shipping is going to be required,' says Mr Ji. 'If more shipping is required, then we can provide more shiprepair and engineering. This is our future direction.'

Shiprepair accounted for 80 per cent of Cosco Corp's turnover in the latest quarter, versus just 3 per cent in the same quarter last year. Shipyard operations contributed $188.2 million in the latest Q3. At the same time, the shipping business's contribution fell to 18 per cent of turnover, from 78 per cent previously.

After acquiring 51 per cent of Cosco Shipyard - the largest shipyard company in China - Cosco Corp is well placed to tap into the growth of China as a major shiprepair centre, Mr Ji says.

He also believes that high oil prices present an opportunity for Cosco Corp to grow its marine engineering business.

'We have carried out studies that show that anything related to oil or energy resources will be booming, so we are looking at future expansion of marine engineering,' he says.

'The international environment for trading is always going to go through ups and downs. In terms of competition, either you can acquire some other people or you will be acquired by others.'

He says Cosco Corp will continue to expand by strengthening its shipping and shiprepair and engineering businesses through organic growth and acquisition.

For acquisition, 'we need to be very aggressive and very careful about how we are going to do that', he says.

'Risk control is also very important. If you want to acquire somebody, what is the risk in that and what are the returns from such a position or expansion of the company?'

Acquisitions will only be in core areas. Mr Ji says his company is committed to sticking to its expertise and what it knows best. And that is why it started divesting non-core businesses several years ago.

Mr Ji says that when he took over as president Cosco Corp, he spent a lot of time studying its businesses and why its share price has stagnated around 14 cents.

After that, he decided what the company's core businesses should be and made the difficult decision to dispose of non-core businesses in areas like trading and property.

'But the decision was not accepted by everyone and all the employees,' he remembers. 'They said we'd set up the business for so many years, why close it down or sell it to other companies?

'I said that its a non-core business of Cosco Corp, we need to sell them. It's for the interests of our shareholders.'

Some of the businesses, such as property, had to be sold at a loss, because 'these properties were purchased in 1994, 95, 96 when prices were at their peak', he says. 'So we needed to get approval and understanding from shareholders.'

The company got the approval it sought. And its share price did not take a beating as a result. Instead, it rose, contrary to expectations. Which goes to show that divestment and restructuring can prove very successful.

Since last year, Cosco Corp has been a component stock of the Straits Times Index and the Financial Times Asia Pacific (excluding Japan) Index.

Mr Ji wants Cosco Corp to expand steadily in a stable manner.

'Unlike other companies that want to go forward in a big step, we don't mind going a bit slower to build a solid base,' he says. 'This means we must be comfortable with ourselves first.

'When you expand, you need to consider your financial ability, and shareholders' interests. Don't do anything above your ability. Don't expect to eat the cake in one mouthful.'