The Straits Times / The Business Times News on Cosco

Cosco's profits up 28% to record $205m

CHINESE shipping group Cosco has posted a 28 per cent hike in profit to a record $205.4 million as turnover surged 39 per cent to $1.22 billion.

The strong performance for the year ended Dec 31 came as the company repaired and converted more ships and began building vessels for the red-hot offshore marine sector. The bottom line was also boosted by a one-off gain of $25.5 million from the sale of four old ships.

However, bulk shipping operations were lacklustre amid softening freight rates prompting Cosco vice-chairman and president Ji Hai Sheng to say yesterday that the company may eventually exit the sector to focus on its more successful shipyard business.

Ship repair and marine engineering revenues, which made up 85 per cent of Cosco's turnover, jumped 45 per cent to $1.03 billion.

This was achieved as the company managed to win higher value contracts, for example, to repair oil rigs, and convert single-hulled oil tankers to double-hulled ships.

As a result of a conscious effort to move away from low value bulk carrier repair jobs, Cosco's average revenue per ship repair rose 72 per cent to $1.9 million.

The higher turnover also came as capacities at shipyards in Dalian and Zhoushan were expanded.

It was less rosy at the dry-bulk shipping business, which eked out a 1.7 per cent increase in revenues to $148.1 million. Charter-hire sales fell as global freight rates slid.

Mr Ji said the company does not have a timetable to shut down the shipping operations yet but pointed out that it has not ordered any new vessels in four years.

Indeed, the two new ships that were added to its fleet were ordered in 2003 to replace the four ships that it sold.

Cosco expects to do better this year as its shipyards look set for an even busier year.

The company has an order book of $1.33 billion, of which half will be realised this year. Of these, $982 million worth of orders were won in the past six weeks.

'In 2007, new facilities and significant capacity increases coming on stream will allow the group to further penetrate into the niche markets of high-value offshore marine engineering work,' said Mr Ji.

'These higher yield contracts will give us greater confidence in executing technically complex and demanding projects,' he added.

Earnings per share were 9.3 cents, up from 7.35 cents. Net asset value per share was 30.26 cents, up from 23.65 cents as at Dec 31, 2005.

A final dividend of 2.5 cents per share has been declared, along with a special dividend of 1.5 cents per share.

The shares closed up one cent to $2.89. The results were released after the market closed.