A Sinotrans sign hangs outside the company's office in Shanghai. The company said it would be difficult for 2011 profit to outperform that of 2010. Qilai Shen / Bloomberg

Company issues warning as it announces 20% rise in net profit

Hong Kong-listed dry bulk shipping company Sinotrans Shipping Limited warned Friday that the global shipping market will continue to be volatile in 2011 on the same day it announced a nearly 20 percent jump in its net profit for 2010.

Sinotrans said its earnings rose 19.9 percent to $127.54 million for the year ended December 31 from $106.39 million in 2009 due to the profit contribution from charter hires and ocean freight. Earnings per share were $3.19 cents, also up from $2.66 cents in the previous year. The company declared a final dividend of HK$0.06 per share.

The company also reported revenue of $278.50 million, registering a 21.6 percent increase from 2009. However, the company's net profit margin declined a slight 0.6 percentage point to 45.8 percent from 46.4 percent in the previous year.

Sinotrans Chairman Zhao Huxiang warned that the global shipping market will be volatile in 2011 due to an excess supply of new dry bulk fleets and the lingering impact of the global financial crisis on the global economy.

"In the first two months of 2011, the profit contribution of the dry bulk business was not so good. I think it would be difficult for the 2011 profit performance to outperform 2010," Zhao said.

According to Sinotrans, the 2011 average Baltic Dry Index, which reflects the market sentiment of the global shipping industry, has increased 5.4 percent from a year ago. During 2010, the index experienced ups and downs with weaker performance in the second half of 2010.

However, prospects for the global shipping business are not completely negative as there are still favorable factors, too.

"World trade and seaborne demand will keep growing in line with the sustained recovery of the global economy, in particular the rapid development of emerging economies led by the mainland," Zhao said. "These are related to factors such as long-distance raw materials trading, port congestion and seasonality, which will have positive effects on the shipping market."

Zhao added that the recent oil price hikes will not seriously affect Sinotrans' business as the dry bulk shipping business is mainly done on a charter hire basis, so it is the vessel tenants that will bear the major portion of any cost increases due to higher oil prices.

Looking ahead, Sinotrans will utilize $219.4 million in capital expenditure for future business expansion in 2011. The company also has seven vessels under construction with a capacity of 0.7 million deadweight tons (DWT) and will be delivered from 2011 to 2012.

As of December 31, the company operated a fleet of 46 cargo vessels with an aggregate capacity of 2.66 million DWT and an average age of 9.3 years.

"If international oil prices continue to rise because of increasing political tensions in the Middle East countries, the increase in energy costs will take a toll on Sinotrans' shipping business," said Dickie Wong, a research manager at the Kingston Security Limited.

"Another factor is the market demand. After the huge rebound in the global shipping market in 2010 from the low levels of 2009, the rebound of market demand in 2011 may be limited, therefore crimping profit growth."

Sinotrans shares closed down 1.46 percent at HK$2.70 in Hong Kong trading Friday.

China Daily

(HK Edition 03/12/2011 page3)