Principally engaged in ports operation, bonded logistics operation and property investment.
The Group's profit attributable to shareholders for the 6 months ended 30-06-2019 amounted to HKD 6.53 billion, an increase of 19.8% compared with previous corresponding period. Basic earnings per share was HKD 1.9607. An interim dividend of HKD 0.22 per share was declared. Turnover amounted to HKD 4.46 billion, a decrease of 19.7% over the same period last year, gross profit margin down 1.6% to 43.8%. (Announcement Date: 30 Aug 2019)
Business Review - For the six months ended June 30, 2019
In the first half of 2019, the Group’s ports handled a total container throughput of 54.56 million TEUs, up by 1.4% year-on-year, which was mainly benefitted from the growth in container volume of the Group’s overseas ports and ports in Yangtze River Delta region, China. Among which, the Group’s ports in Mainland China contributed a container throughput of 40.52 million TEUs, indicating an increase of 1.3% year-on-year. The Group’s operations in Hong Kong and Taiwan contributed an aggregate container throughput of 3.55 million TEUs, representing a decrease of 4.7% as compared with the same period last year. A total container throughput handled by the Group’s overseas ports grew by 4.0% year-on-year to 10.49 million TEUs. Bulk cargo volume handled by the Group’s ports decreased by 10.7% year-on-year to 223 million tonnes, within which the Group’s ports in Mainland China handled a total bulk cargo volume of 220 million tonnes, representing a decrease of 11.2% year-on-year.
Pearl River Delta region
The Group’s terminals in West Shenzhen Port Zone handled a container throughput of 5.14 million TEUs and a bulk cargo volume of 3.89 million tonnes, down by 7.2% and 47.7% year-on-year respectively, because the Group completed the disposal of the entire equity interest in China Merchants Port Group Co., Ltd. (formerly known as “Shenzhen Chiwan Wharf Holdings Limited”, “Shenzhen Chiwan”) in June 2018. Guangdong Yide Port Limited handled a container throughput of 0.13 million TEUs and a bulk cargo volume of 0.99 million tonnes, up by 33.7% and 60.4% year-on-year respectively. Chu Kong River Trade Terminal Co., Ltd. handled a total container throughput of 0.54 million TEUs and a bulk cargo volume of 1.54 million tonnes, down by 18.2% and up by 26.6% year-on-year respectively. Modern Terminals Limited and China Merchants Container Services Limited in Hong Kong delivered an aggregate container throughput of 2.73 million TEUs, down by 5.8% year-on-year, which outperformed the overall market of Hong Kong.
Yangtze River Delta region
Shanghai International Port (Group) Co., Ltd. (“SIPG”) handled a container throughput of 21.54 million TEUs, up by 5.0% year-on-year, thanks to the faster ramping of Yangshan Phase IV year-on-year. Bulk cargo volume handled declined by 18.5% year-on-year to 61.75 million tonnes, which was mainly affected by the strategic adjustments of its business structure. Ningbo Daxie China Merchants International Terminals Co., Ltd. handled a container throughput of 1.64 million TEUs, representing a decrease of 4.3% year-on-year.
Bohai Rim region
Dalian Port (PDA) Company Limited handled a container throughput of 5.07 million TEUs, down by 7.9% year-on-year, which was mainly attributed to the decrease in the business volume of domestic containers as a result of the adjustment on its business structure. It also handled a bulk cargo volume of 63.04 million tonnes, representing an increase of 1.9% year-on-year. Qingdao Qianwan United Container Terminal Co., Ltd. handled a container throughput of 3.79 million TEUs, representing an increase of 11.6% year-on-year, driven by the growth of domestic containers. Qingdao Qianwan West Port United Terminal Co., Ltd. handled bulk cargo volume of 7.64 million tonnes, representing an increase of 7.3% year-on-year. Qingdao Port Dongjiakou Ore Terminal Co., Ltd. handled bulk cargo volume of 28.16 million tonnes, indicating a decrease of 4.6% year-on-year, as the import volume of iron ore, the major cargo type, declined, because a dam owned by Vale S.A. in Brazil, the world’s largest iron ore exporter, collapsed at theSouth-East region of Mainland China
Zhangzhou China Merchants Port Co., Ltd., located in Xiamen Bay Economic Zone, handled a container throughput of 0.19 million TEUs, increased by 1.1% year-on-year, while its bulk cargo volume handled decreased by 42.4% year-on-year to 4.57 million tonnes, which was mainly due to the significant decrease in the production volume of sandstone, a cargo type with the largest proportion of throughput, affected by the environmental regulatory measures in the hinterland. Xia Men Bay China Merchants Terminals Co., Ltd., which officially commenced operation in May 2019, handled a bulk cargo volume of 0.08 million tonnes. Shantou China Merchants Port Group Co., Ltd. handled a container throughput of 0.59 million TEUs, down by 2.9% year-on-year; and a bulk cargo volume of 3.92 million tonnes, down by 12.5% year-on-year, which was mainly due to the declining demand for coal, a major cargo type, from the hinterland.
South-West region of Mainland China
Zhanjiang Port (Group) Co., Ltd. handled a container throughput of 0.52 million TEUs, up by 13.4% year-on-year, mainly attributable to the successful expansion of services from new shipping routes and container trains of sea-rail intermodal transport. It also handled a bulk cargo volume of 44.31 million tonnes, down by 3.8% year-on-year.
Kao Ming Container Terminal Corp. in Kaohsiung handled a total container throughput of 0.82 million TEUs, representing a decrease of 0.7% year-on-year.
Colombo International Container Terminals Limited (“CICT”) in Sri Lanka handled a container throughput of 1.37 million TEUs, up by 5.7% year-on-year. The wheeled and bulk cargo business in Hambantota International Port Group (Private) Limited (“Hambantota Port”) progressed well with a bulk cargo volume handled of 0.46 million tonnes, indicating a significant increase as compared to 0.08 million tonnes for the same period of last year. Container throughput handled by Lome Container Terminal S.A. in Togo increased by 9.3% year-on-year to 0.54 million TEUs. Container throughput handled by Tin-Can Island Container Terminal Ltd. in Nigeria was 0.24 million TEUs, representing a decrease of 8.4% year-on-year, which was mainly due to the port congestion resulted from the ongoing repair work of the port access road. Port de Djibouti S.A. in Djibouti handled a container throughput of 0.45 million TEUs, up by 11.1% year-on-year, and a bulk cargo volume of 2.87 million tonnes, up by 23.4% year-on-year, mainly attributed to the increasing import demand for relevant raw materials driven by the small-scale infrastructure projects in Ethiopia. Terminal Link SAS handled a container throughput of 6.84 million TEUs, up by 1.7% year-on-year. The container throughput and bulk cargo volume handled by Kumport Liman Hizmetleri ve Lojistik Sanayi ve Ticaret Anonim ?irketi in Turkey were 0.62 million TEUs and 0.06 million tonnes, representing a decrease of 5.7% and an increase of 3.7% year-on-year respectively. TCP Participacoes S.A. in Brazil handled a container throughput of 0.44 million TEUs, up by 70.0% year-on-year, which was benefitted from the increase in import and export container volume driven by the growth in the trade of agricultural and meat products.
Strategic deployments in the ports operation
In the first half of 2019, facing the global economic pressure, the Group upheld the strategic principle of “leveraging on its long-term strategy, tapping the current edges, driving through technology and embracing changes”, and focused on the “Project of Improving Quality and Efficiency” as a pivot. By conducting scientific researches on the changes in market conditions, the Group made great efforts in the development of overseas ports network in response to the adjustments of the international industrial landscape. At the same time, the Group accelerated integration and development internally and strengthened synergic cooperation externally, thereby enhancing professional capabilities, improving risk management and control, and various tasks have achieved positive results.
Regarding the development of homebase ports, the Group proactively promoted resources consolidation and accelerated the construction of the world-class leading ports. By executing the “Pearl River Delta Strategy”, the Group penetrated into the hinterland of cargos and diverted cargos from the Pearl River Delta to the homebase port. The Group also actively pushed forward the feeder services and customs integration, and facilitated the construction of the “PRD NETWORK” platform in a bid to solidify the leading position of our homebase port among the hubs in Guangdong-Hong Kong-Macao Greater Bay Area. The Group accelerated the dredging and deepening project. Section 1 of the dredging and widening project for the Public Channel outside West Shenzhen Port Zone has been officially put in use, while sections 2 and 3 of the project are underway. Meanwhile, the Group has stepped up the efforts in the construction of an intelligent port, and the automation project of Haixing Port progressed with informationalisation, docking of operations, as well as planning and design of the control centre. Besides, the Group has enhanced the transformation of the smart safety monitoring and on-shore smart tally system in West Shenzhen Port Zone. In addition, the Group accelerated the promotion of innovative applications and applied the experiences of innovation projects to a larger scope, including “System of Safety Protection and Operation Support for Container Gantry Cranes” and “RTG Remote Control”, which has improved operational efficiency, reduced operating costs, strengthened trade facilitation and improved the overall competitiveness of the West Shenzhen homebase port. The Group has further strengthened the construction of CICT, the overseas homebase port, and the cultivation of international talents. Hambantota Port has brought this overall concept into practice, and actively promoted the in-depth cooperation with international business partners. Meanwhile, the business synergy between CICT and Hambantota Port increased continuously with extensive synergic cooperation in the aspects of human resources, business expansion, financial management, as well as equipment and assets.
As for overseas expansion, the Group decided the direction for overseas development, i.e., by seizing the opportunities arising from the Belt and Road Initiative and international industries migration, as well as adapting to the trend of mega vessels and the alliance of shipping lines, the Group will focus on major hub locations, gateway ports and regions with huge market potential, fast economic growth and positive development prospects around the world, thereby grasping the investment opportunities in ports, logistics and related infrastructure, and further improving its global port network. Based on the analysis on economic development and foreign trade in Southeast Asian and South Asian countries, industries migration, market of ports operation and ports network of shipping alliances, the Group has identified Southeast Asian and South Asian gateway ports as its key investment targets. Simultaneously, it continued to study investment opportunities for gateway ports in mature markets, and strengthened the strategic cooperation with major international shipping companies, and pushed forward port projects and comprehensive development projects adjacent to ports in Africa.
With respect to comprehensive development, the Group actively implemented its comprehensive development model of “Port-Park-City”. In the first half of 2019, a business outsourcing agreement for the oil tank area has been signed for the comprehensive development project of Hambantota Port, and the preparation work for the delivery of the maintenance and upgrade of oil tank area was nearly completed. Djibouti International Free Trade Zone was officially put into operation in early 2019. Through active participation and organisation of promotional campaigns, the Group witnessed positive development in the introduction of business and investment with 66 enterprises registered in the park as of the end of the period. During the period, the Group completed the transaction in relation to the land interest in Qianhai-Shekou Free Trade Zone in Shenzhen.
With regard to innovative development, the Group continued to push forward the establishment of a comprehensive port ecosystem with ports operation as the core, according to the innovation strategy, and enhanced the synergy and cooperation with the relevant parties in port business, so as to proactively promote the transformation and upgrade of the Company towards a “comprehensive port service provider”. Regarding the innovative projects, the Group continued to put efforts in establishing the China Ports Venture Capital. Furthermore, on the basis of the application of “E-Port” in West Shenzhen Port Zone, the Group conducted researches and formulated plans for promoting the application of “CM ePort” at all subsidiary level. For digital innovation, the Group has completed the planning for informationalisation with the assistance of the professional advisors during the period, aiming to enhance the information management level for the global ports operation of the Group and create new drivers for quality development. Through such plan, the Group has identified the needs for informationalisation in aspects such as management of the headquarters, terminal operation and comprehensive ecosystem, and formulated the vision, blueprint and implementation roadmap of the Group’s informationalisation development in the coming three years. Concurrently, Haixing Intelligent Port project has progressed as planned. Blockchain electronic invoices have fully applied in West Shenzhen Port Zone, which is the first B2B blockchain electronic invoices system for ports in China. In June 2019, the first “5G intelligent port innovation laboratory” of port industry in Mainland China was unveiled in Shekou, Shenzhen, which marked the commencement of construction for the first 5G intelligent port in Guangdong-Hong Kong-Macao Greater Bay Area.
Regarding operation management, the Group strived to develop a holistic operation management system that is strategy-driven. Based on the strategic positioning of its subsidiaries, the Group formulated differentiated investment plan and performance assessment mechanism to facilitate the sustainable and effective development of its subsidiaries. Moreover, the Group pushed forward the development of comprehensive port ecosystem, three major channels dredging projects and human resources management platform, and strengthened both the software and hardware infrastructure so as to enhance the service ability and competitiveness of the terminals in the region, promote the synergic development between different segments and businesses in different regions, and maximise the overall performance. The Group deepened the work on improving quality and efficiency. Organisations for quality and efficiency enhancement were formed at the headquarters and subsidiaries. To fully explore the operational potentials, by benchmarking against leading enterprises, initiatives and action plans for quality and efficiency enhancement has formulated from three aspects of revenue, cost and empowerment respectively, aiming to release the potentials and increase the efficiency of the subsidiaries. In order to improve the management efficiency at the headquarters and empower the subsidiaries with creativity and judgement, the Group has streamlined the internal control procedures and improved the cooperation mechanism among subsidiaries at different levels. Apart from enhancing operational efficiency, the Group also unleashed the companies’ potentials in relevant decision-making capability through differentiated management, which was conducive to the efficient operation and long-term development of the Group.
Bonded logistics operation
In the first half of 2019, the Group’s bonded logistics business continued to pursue the development direction of diverse integrated services business. The Group has put more efforts in marketing and enhanced the utilisation rate of resources at the existing warehouses and yards so as to respond to market changes. The utilisation rate of the warehouses of China Merchants Bonded Logistics Co., Ltd. in Shenzhen reached 97%, as a result of active exploration of new clients and operating models. China Merchants International Terminal (Qingdao) Co., Ltd. made full use of its resources to develop self-operated business and the warehouse utilisation rate was 99%. Tianjin Haitian Bonded Logistics Co., Ltd., which is an associate of the Group, recorded a utilisation rate of 60% of its warehouses. The bonded warehouse in Djibouti, of which the Group participated in the investment and construction, has commenced operation, and its warehouse utilisation rate reached 80%.
During the first half of 2019, the total cargo volume handled at the three major air cargo terminals in Hong Kong amounted to 2.04 million tonnes, representing a decrease of 2.4% year-on-year. Asia Airfreight Terminal Company Limited, which is an associate of the Group, handled a total cargo volume of 0.38 million tonnes, representing a decrease of 7.3% year-on-year and a market share of 18.6%, down by 1.0 percentage point as compared with the same period last year.
Business Outlook - For the six months ended June 30, 2019
Looking forward to the second half of 2019, affected by factors such as trade frictions, financial markets volatility and increased uncertainties in monetary policies, the stability of global economy will be further undermined. According to IMF’s forecast in July 2019, the global economic growth rate in 2019 is expected to be 3.2%, down by 0.4 percentage point as compared to that of 2018. Among which, the developed economies will grow at 1.9% (2018: 2.2%); and the emerging markets and developing economies will grow at 4.1% (2018: 4.5%). Global trade volume (including goods and services) will grow at a slower pace of 2.5% (2018: 3.7%). As stated in a report published in May 2019, the Organisation for Economic Co-operation and Development believed that the global economy will register a moderate yet vulnerable growth in the next two years. Intensified trade tension, high uncertainties of policies and financial market risks will result in weaker global investment and confidence, and thus create headwinds for the robust and sustainable global growth in the mid-term. The uncertainties of tariffs and trade in the future will disrupt global value chain and cause harm to the manufacturing industry, which will bring material uncertainties and hence pressure on decision-making of investment.
In the second half of 2019, against the backdrop of increasing global uncertainties, it is expected that the Chinese economy will continue to experience growth despite at a lower rate. According to IMF’s latest forecast in July 2019, the Chinese economy is expected to grow at 6.2% in 2019. It is expected that import and export trade will decrease under the influence of tariffs, which can be alleviated through reduction of import tariff and increase in refund of value-added tax for exporting products announced earlier. Monetary and fiscal policies will be relaxed and the progress of supply-side structural reform will further accelerate. Benefitted from the increase in disposable income, domestic demand, especially consumption, will remain strong and infrastructure investment will rebound.
In the second half of 2019, the international container market will be facing more uncertainties. Firstly, the on-going US-China trade frictions will cast huge uncertainties on global economic development and demand for container shipment; secondly, with the upcoming implementation of “sulfur limit” for vessels by the International Maritime Organization, the operating cost of liners will notably increase; thirdly, the continuous rise of vessel charter rate may lead to further increase in operating cost for liners, while the delivery of new built vessels will partially offset the benefits from the growth of demand. Overall, the freight rate of international container shipping market will also be facing great downward pressure in the second half of the year.
Based on the above analysis and judgement, in the second half of 2019, upholding the strategic principle of “leveraging on its long-term strategy, tapping the current edges, driving through technology and embracing changes”, and under the operation philosophy of “enhancing core capability, insisting on both quality and efficiency, capitalising on opportunities of this era and striving to become a world’s leading enterprise”, the Group will actively push forward the “Project of Improving Quality and Efficiency” to vigorously promote operation and development, aiming to achieve multiple breakthroughs in ports network and innovative transformation through both vertical and horizontal development.
Regarding the development of homebase port, the Group will take world-class leading port as its benchmark. At West Shenzhen homebase port, the Group will strive to push forward the business of “Connected Transportation of Sea-River-Rail” to actively secure import cargos and import reefer containers and strive to expand potential services for shipping routes. The Group will strengthen the development of internal control system and enhance management efficiency. The Group will develop an “intelligent port cluster” that comprises of smart container receiving, auto exit of unladen trucks and paperless auto processing for trucks, expand the online cash payment of “ePay”, phase II of “PRD NETWORK” platform, etc. The Group is committed to developing CICT and Hambantota Port in Sri Lanka into regional leading ports and regional hubs for international shipping. On one hand, CICT will continue to strengthen the development as the overseas strategic fulcrum of the Group, and leveraging on the construction of the international shipping centre in South Asia to establish a base of talents, knowledge and innovative initiatives in Sri Lanka. On the other hand, Hambantota Port will focus on regional strategic planning, strengthening resource utilisation and promoting implementation of port strategies, thereby creating the sustainable profit-generating ability.
As for overseas expansion, the Group aims at achieving world-class standard. Adhering to the vision of “to be a world’s leading comprehensive port service provider”, the Group will keep abreast of the evolving trend of the global economic and trading landscape, make objective judgement on industries migration, and continue to focus on key regions and markets, in order to capture investment opportunities in overseas ports and optimise its global port network. With a focus on key overseas ports, the Group will develop regional port service networks and a capital operation platform for overseas assets, enhance the operational capability of overseas projects and strengthen the overseas teams of managerial talents.
In respect of comprehensive development, the Group aims at establishing world-class standard by proactively promoting the “Port-Park-City” development model. Hambantota Port will continue to adopt the “Port-Park-City” development model with a focus on constructing five major platforms, namely, port services, maritime services, integrated logistics, port-centred industries and enterprise incubation, striving to develop Hambantota Port into a key hub along the Belt and Road. With the commencement of operation, Djibouti International Free Trade Zone will conduct in-depth industrial research. While improving the precision of business solicitation, the Group will further enhance the image and influence of the Group in the region through synergic development among companies under the Group, thereby promoting the steady development of various businesses.
Regarding innovative development, the Group will push forward the digital transformation as well as the construction of an intelligent port through reforms in production technology, operation model and business model. The Group will unify the port operating and management system, and upgrade information service platform for each subsidiary port based on the Group’s planning principles of informationalisation. Next, the Group will formulate the guiding implementation plan and ensure the execution from aspects of organisation, resources, company policies and mechanisms, which will be revised annually on a rolling basis according to the situation so as to carry on continuously, thereby achieving information connection between subsidiary ports. With the “empowerment of technology”, the Group will build an ecosystem of technological innovation to enhance the overall port service capability and provide customers with smart and convenient services.
Regarding operation management, the Group will work aggressively towards world-class level. In the second half of 2019, the Group will continue to push forward the “Project of Improving Quality and Efficiency”, and improve the operation and management capability internally. With a thorough understanding on the problems, identifying the priorities and executing the key projects, the Group will use the “Project of Improving Quality and Efficiency” as a means to advance the development of leading ports with growing efficiency and profits from the core business of port operation. The Group will streamline the global operation and management system covering information, operation, finance, project development, and corporate culture, etc. Expert teams will be assigned to study and formulate the contents and standards for each business module, identify problems on a regular basis, establish various evaluation grades and action plans to tackle problems, and conduct assessment on the execution.
With regard to marketing and commerce, the Group will benchmark against world-class standards. The Group will deepen the cooperation with shipping companies, and form alliances with shipping companies and port operators. Being customer-oriented, the Group will provide customers with more quality services based on market research and feedback. To realise synergic development and mutual benefits, the Group will strengthen communication and cooperation with other port operators in and outside China, so as to respond to changes in external environment, establish a cooperative and sharing mechanism, and set out better practices in the industry. In addition, the Group will strengthen the synergetic cooperation with cargo owners and expand into the upstream and downstream along the port industry chain, so as to build a more efficient and smarter trade chain.
In the second half of 2019, despite that the global economic and trade development will face risks related to various uncertainties and intensified challenges, the trend of industries migration and the booming emerging markets will bring development opportunities to comprehensive port services overseas. Moreover, the evolution of technology will contribute to the intelligentisation of port and shipping industry, achieving higher efficiency of the industry chain. The Group will capture the opportunities of this era, enhance its core competencies as well as maintain its strategic strength. As always, the Group will endeavour to maximise shareholder value while enhancing profitability, thereby delivering better returns for its shareholders.
Source: China Merchants Port (00144) Interim Results Announcement