Horrible Revenues Reported By Container Maker/Lessor COSCO Shipping Development

It's an income statement of two halves for COSCO Shipping Development, which both leases container ships while also making and leasing ocean shipping boxes. Revenues fell off a cliff. But COSCO Shipping Development was able to protect its bottom line by slashing costs. Profits surged.

COSCO Shipping Development (HKEX: 2866; SSE: 601866) reported a shocking 22% decrease in its consolidated income statement for the first nine months of 2019, which ended on September 30. That figure stood at 10.18 billion yuan ($1.42 billion), which represents a year-on-year decline of 2.93 billion yuan ($410.23 million).

However, net profits surged by a whopping 60% in the nine months through September compared to the same time period last year. In the nine-month period of January through September,  net profit stood at 1.29 billion yuan ($180.6 million), which was an absolute difference of 485.56 million yuan ($67.92 million) when compared to the first three quarters of 2018.

COSCO Shipping Development is also known, especially in Mandarin, as "COSCO Haifa" or "Zhongyuan Haifa". As the name suggests, COSCO Shipping Development is part of the famous COSCO Shipping group of companies.

Third Quarter Revenue Slump

Two sets of income streams, "revenues from operations" and "handling charges and commission income" both fell during the third quarter specifically, i.e. the three months from July to September 2019. Year-on-year revenues from operations fell by 31.59% to 3.34 billion yuan ($467.55 million) while handling charges and commissions slumped by 40.98% to 9.33 billion ($1.39 million).

The income statement line item "investment income," which includes gains from investments in associates and joint ventures didn't look too stellar either. Reporting a 49.44% decline in investment income, COSCO Shipping Development revealed an end of quarter figure of 286.6 million yuan ($40.09 million), which is the end result of an absolute decline of ($39.20 million).

Costs And Expenses

The total for the line item "cost of sales" fell year-on-year by 32.35% to 3.27 billion yuan ($457.56 million) in the third quarter of 2019. There were numerous developments in many of the "cost of sales" sub-lines on the income statement. The key line was "operating cost," which fell by 38.18% in the three months ending September 2019 when compared to the prior corresponding period. In the current reporting period, the group's operating cost stood at 2.38 billion yuan ($332.98 million), which is an absolute decrease in cost of 1.47 billion yuan ($205.62 million). The group also saved about 167.43 million yuan ($23.42 million) in finance costs in the current quarter compared to the same time frame last year.

Profit Plunge

In summary, even though the nine-month profit figure had increased compared to the prior corresponding period, COSCO Shipping Development's end result for the third quarter of 2019 was 270.74 million yuan ($37.87 million), which is a decrease of just under 14% year-on-year.  

About COSCO Shipping Development

The main shareholder in the group was the China Shipping Group Company with 38% of the equity. China Shipping Group Company is a state-owned entity. The second-largest shareholder, with 31.5% of the equity, was HKSCC Nominees. It is a holding company of the Hong Kong Stock Exchange. HKSCC nominees is an entity used in the share trading and settlement process to temporarily hold shares on behalf of other entities. Cosco Shipping Development notes that the principal business of the nominee company is to hold shares for other companies or individuals.

COSCO Shipping Development operates a variety of businesses. Oriental Fleet International offers ship chartering and leasing. COSCO Shipping Development (Tianjin) Leasing offers renminbi-denominated leases and leaseback for shipping. Hong Kong-based Florens International is a famous name in container leasing, sales and management. It was formed from the merger of Florens Containers and Dong Fang International.

In a statement that was published only in Mandarin, COSCO Shipping Development has revealed that, for the six months to July 2019, Florens generated $660 million "operating income" and that net profit for the period was $9 million.

Meanwhile, another subsidiary company, COSCO Shipping Leasing, provides financial leasing in a variety of sectors.

Another company in the group is Shanghai Universal Logistics Equipment, which was founded in 2008 and carries out specialized research and development, production and sale of logistics equipment, according to a statement from the group. It also makes ocean-going shipping containers. COSCO Shipping (Tianjin) Guanghua Investment Management appears to be some kind of corporate venture capital unit that will invest in a variety of industries while, finally, Helen Insurance Brokers is "chiefly" engaged in marine insurance brokerage.

COSCO Shipping Development's third quarter results were published in accordance with the generally accepted accounting principles of the People's Republic of China. COSCO Shipping Development is dual-listed on both the Hong Kong and Shanghai Stock Exchanges.

Read more stories by Jim Wilson. Jim is based in Australia but he mostly covers the Asian maritime sectors. He can be reached with comments, suggestions and tips via jwilson@freightwaves.com.

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