Cosco Pacific, the ports arm of China's largest shipping conglomerate, sees terminals as its growth driver and will double annual capital expenditure in ports to tap booming global trade, a senior executive said on Tuesday.
Tapping boom: Cosco Pacific expects profit contribution from ports to exceed 50% within three years
The world's fifth-largest port operator plans to invest US$400 million to US$600 million in terminals each year from 2008 to 2010, company executive director Kelvin Wong told Reuters in an interview.
Cosco Pacific, a unit of China Cosco, spent about US$300 million in capital expenditure in terminals this year and US$275 million in 2006.
'We will increase our investments in ports and make it our biggest profit contributor,' Mr Wong said.
He expected the profit contribution from Cosco's ports to exceed 50 per cent within three years, from below 40 per cent now.
The company, rivals such as China Merchants Holdings (International) Co Ltd and foreign players like AP Moeller-Maersk, have stepped up port investments to tap the unprecedented boom in trade that has seen China become the world's third-largest trading nation.
Cosco Pacific, which owns or is invested in 119 berths sprinkled across China, Hong Kong, Singapore and Europe, signed new Chinese port projects including those in Qingdao, Jiangdu, Quanzhou and Xiamen cities this year.
With its investments in Quanzhou, Xiamen and Fuzhou ports in China's Fujian province at the Taiwan Strait, Cosco Pacific has positioned itself to take the advantage of increasing traffic between China and Taiwan, Mr Wong said.
It also completed the acquisition of a 20 per cent stake in Suze Canal Container Terminal this year from a unit of AP Moeller-Maersk.
Cosco Pacific manages 1.5 million TEUs (20-foot- equivalent units) of containers, of which about half were sold and leased back.
The company also plans to use US$300 million next year to buy about 225,000 TEUs of boxes.
'We are taking the asset light approach in our container leasing business, which will provide us with stable returns and less exposure to the volatility of box prices,' Mr Wong said.
Cosco Pacific, which is the world's third largest sea container leasing firm with 13 per cent of the global market, will continue to own half of the boxes it manages.
Its ultimate Cosco Group owns the world's fifth-largest container shipping fleet and operates the world's largest bulk cargo fleet through China Cosco.
Analysts said Cosco Pacific's low-cost expansion of its container box fleet could reserve more resources for its future port investment.
Mr Wong also said the company had no plans to issue new shares, using debt to fund future expansion, as its gearing ratio is a relatively low 19 per cent.
Container leasing accounted for nearly 34 per cent of the company's net profit in the first half. The balance came from its investments in the world's largest container box maker, China International Marine Containers (Group) Co, and others investments.
Some analysts suggested that Cosco Pacific spin off its container box leasing business into a trust that could attract investors who chase for stable returns.
But Mr Wong declined to comment on the suggestion.
Cosco Pacific shares have underperformed its peers and the market this year with investors buying its dual-listed parent to benefit from the higher valuation of the Shanghai market.
The stock has risen 18 per cent this year against a 56 per cent gain on China Merchants and a 66 per cent rise on the index for Chinese companies listed in Hong Kong.
China Cosco shares have gone up about six-fold this year.
Tapping boom: Cosco Pacific expects profit contribution from ports to exceed 50% within three years
The world's fifth-largest port operator plans to invest US$400 million to US$600 million in terminals each year from 2008 to 2010, company executive director Kelvin Wong told Reuters in an interview.
Cosco Pacific, a unit of China Cosco, spent about US$300 million in capital expenditure in terminals this year and US$275 million in 2006.
'We will increase our investments in ports and make it our biggest profit contributor,' Mr Wong said.
He expected the profit contribution from Cosco's ports to exceed 50 per cent within three years, from below 40 per cent now.
The company, rivals such as China Merchants Holdings (International) Co Ltd and foreign players like AP Moeller-Maersk, have stepped up port investments to tap the unprecedented boom in trade that has seen China become the world's third-largest trading nation.
Cosco Pacific, which owns or is invested in 119 berths sprinkled across China, Hong Kong, Singapore and Europe, signed new Chinese port projects including those in Qingdao, Jiangdu, Quanzhou and Xiamen cities this year.
With its investments in Quanzhou, Xiamen and Fuzhou ports in China's Fujian province at the Taiwan Strait, Cosco Pacific has positioned itself to take the advantage of increasing traffic between China and Taiwan, Mr Wong said.
It also completed the acquisition of a 20 per cent stake in Suze Canal Container Terminal this year from a unit of AP Moeller-Maersk.
Cosco Pacific manages 1.5 million TEUs (20-foot- equivalent units) of containers, of which about half were sold and leased back.
The company also plans to use US$300 million next year to buy about 225,000 TEUs of boxes.
'We are taking the asset light approach in our container leasing business, which will provide us with stable returns and less exposure to the volatility of box prices,' Mr Wong said.
Cosco Pacific, which is the world's third largest sea container leasing firm with 13 per cent of the global market, will continue to own half of the boxes it manages.
Its ultimate Cosco Group owns the world's fifth-largest container shipping fleet and operates the world's largest bulk cargo fleet through China Cosco.
Analysts said Cosco Pacific's low-cost expansion of its container box fleet could reserve more resources for its future port investment.
Mr Wong also said the company had no plans to issue new shares, using debt to fund future expansion, as its gearing ratio is a relatively low 19 per cent.
Container leasing accounted for nearly 34 per cent of the company's net profit in the first half. The balance came from its investments in the world's largest container box maker, China International Marine Containers (Group) Co, and others investments.
Some analysts suggested that Cosco Pacific spin off its container box leasing business into a trust that could attract investors who chase for stable returns.
But Mr Wong declined to comment on the suggestion.
Cosco Pacific shares have underperformed its peers and the market this year with investors buying its dual-listed parent to benefit from the higher valuation of the Shanghai market.
The stock has risen 18 per cent this year against a 56 per cent gain on China Merchants and a 66 per cent rise on the index for Chinese companies listed in Hong Kong.
China Cosco shares have gone up about six-fold this year.