Following a sharp decline in net profit, China's major freight forwarder Sinotrans hoped to further boost its core business in the next few years.

"We will increase input on our core businesses, namely freight forwarding, express services, logistics and shipping agency," said Sinotrans President Zhang Jianwei.

Zhang said that Sinotrans's capital expenditure for the remaining of the year would amount to about 1.5 to 1.8 billion yuan, most of which will be used on the core businesses.

"Of which 200 million yuan will be used on a container storage and processing centre in Yangshan Port of Shanghai," he said.

"The remainder will be invested on three logistics centres in Shanghai, Guangdong and Shenzen and one container storage and processing centre in Dalian Bay."

Zhang said that Sinotrans would gradually reduce input on its terminal and marine transportation businesses as they were becoming the company's "supplementary businesses".

Sinotrans recorded a loss on its marine transportation sector in the first half of 2006 due to high global oil price and a dramatic slow down of China's export that resulted in an imbalance of supply and demand in the local market.

"The National Export Container Freight Rate Composite Index went down by 11.9 per cent in the first half of 2006 and correspondingly our average freight rate for certain main lines fell more than 30 per cent," Zhang said.

Sinotrans saw turnover generated by its marine transportation business slump by 5.6 per cent to 1.8 billion yuan in the first six months. The operating profit from the sector also fell from 124.6 million yuan one year ago to minus 138.9 million yuan.

Sinotrans's operating profit as a whole was down by 25 per cent to 490.6 million yuan in the first half.

Its net profit plummeted by 35.6 per cent to 321.4 million yuan from 498.7 million yuan a year ago, despite that the company reaped an increase of 11.9 per cent in total turnover to 14.78 billion yuan.

However, Zhang remained firm about Sinotrans's future development.

"We will further integrate our businesses and trim our cost," Zhang said. "As we focus more on our core businesses to make profit later, we hope that we can hold our profit from going down further in the second half."

Sinotrans's core businesses, freight forwarding, express services and shipping agency, all reported gains in both turnover and operating profit in the first half, contributing a total of 12.46 billion yuan and 550.9 million yuan to the company's total turnover and operating profit, respectively.

Express services and freight forwarding sectors grew most, rising by 31.2 per cent and 11.8 per cent respectively in turnover from the previous year.

"We will step up efforts to develop our domestic express service business," Zhang said.

Starting from the end of 2004, Sinotrans has so far set up a total of 132 express service posts in China.

"We are still losing money on it (domestic express service) and we need to boost number of our express service posts to 300 to 350 to break even," Zhang said.

"But we feel confident about China's domestic express service market and our business just needs a bit longer time to grow."

"We hope to start making profit from the sector in one to two years," Zhang said, without giving any further details.

At the moment, the turnover from Sinotrans's express services still mainly comes from overseas express services through Sinotrans's joint ventures with DHL and Japan's overseas courier service provider OCS, in each of which Sinotrans owns 50 per cent equity interests.

Sinotrans' shares edged up by 0.81 per cent to HK$2.49 yesterday.

(HK Edition 08/31/2006 page3)