COSCO SHIPPING Ports Limited (1199) Earnings Call Transcript & Summary

Dear analysts and investors, good afternoon. Welcome to today's presentation by COSCO SHIPPING Ports Limited. Allow me to introduce members of the management, they are Mr. Dayu Zhang, Managing Director; and Mr. Huangjun Deng, Deputy Management Stream Director; and then Mr. Kelvin Wong. Mr. Zhang is going to deliver his speech now.

Good afternoon. I am Dayu Zhang, the Managing Director of COSCO SHIPPING. First of all, on behalf of the company, I would like to welcome all of you to our 2021 results announcement. With today's announcement, I would like to make more exchanges with you and deepen your knowledge about our company. Today, we will cover 4 parts. First, key highlights for the year financial performance, operational review, strategy and outlook of the company. Finally, the Q&A session. First of all, let's take a look at the key highlights for 2021. With further recovery of global trade activities, 2021 was a year with rapid growth of imports and exports for Chinese commodities. It was up by 21.4% with our leading position in the global market, we are grasping opportunities for further development and promote high-quality development and achieved Lean Operations and create greater efficiencies for our terminals. Terminal profit for Q4 increased by 32.0%, full year increased 38.1%, reaching USD 427 million. We are seeing more obvious impact from Lean Operations, higher profit growth of our terminals and profitability and quality of operations continue to improve. We have actively grasped market opportunities to deepen our active marketing work and promote greater routes and capacity. With lean operation and good cost control, we have realized higher level of profitability of our subsidiaries. In Q4, subsidiary terminal profit increased by 76%. Full year increase was 156.4%. For the Greater China region, our subsidiaries' profit increased by 72.2%. For the overseas ones, we have turned losses into profits. For the entire year, our subsidiary terminal profit level contribution was 11.2% in 2020 and it increased to 20.8% in 2021. Management results, control measures have been driven effective so that we can achieve more sustainable, better quality, more stable development. Now I will invite Mr. Deng to take us through the financial highlights.

Thank you, Mr. Zhang. First of all, let's look at Q4 performance. Revenue grew more quickly compared to throughput increase. Per unit revenue was even faster, up by 20%. We've seen effective cost control actions, strong growth in gross profit by 57.7%, gross margin also further enhanced to 5.9 percentage points. Dividend payout remains at 40%. Whole year dividend, USD 0.0428. Without counting the one-off items, we see increase of 23.6% to profit attributable to our shareholders. Now let's look at the revenue for Q4 and the whole year for our subsidiaries. Q4 growth was 25.1%, and the whole year increase was 20.7%. In 2021, our subsidiaries in the Greater China region continued to grow, up by 25.8%. Xiamen Oceangate terminal actively grasped the opportunities of strong external trade. Throughput grew by 22.6%. Revenue grew by 50.3%. Nansha Terminal also grasped market opportunities to enhance operational capability and realized growth of 19.4%. For our overseas terminals, which are subsidiaries, the revenue increased by 17.1%. PCT Terminal increased their fees despite the fall of 4.1% throughput. Revenue realized increased by 9.8%. Zeebrugge terminal successfully introduced a number of new routes. Revenue grew by 66%. We are gradually seeing the results of our measures to increase revenue and reduce cost. Gross profit also increased substantially in Q4 and the whole year. Q4 growth was 57.7%; gross margin up by 5.9 percentage points to 28.6%. For the whole year, gross profit grew by 39.8%, gross margin increased by 3.7 percentage points to 26.9%. We've seen steady growth of gross margin for the terminals in the Greater China area, up by 25.7%; continuation of good trends in recent quarters. Gross margin also stabilized at around 39%. We'll continue to work on and improve these markets and further promote growth. For the whole year of 2021, gross profit for overseas terminals increased with higher utilization rate of overseas terminals and better efficiency. We will continue to see good potential for growth for overseas terminals. And this is critical in relation to overall profitability of our terminal portfolio. Now let's look at the profit for our terminals. In Q4, terminal profit up by 32%. Full year growth was 38.1%. Both in Greater China area and overseas areas, they enjoy different levels of improvement, especially for the latter one with our company strengthening collaboration with other shipping companies and doing more root linkage and deepening of commercial optimization and speeding up of lean management, we increased our revenue while controlling our cost. Profitability of our terminals continue to improve. If we look at the balance sheet by the end of 2021, total cash and equivalents, USD 1.23 billion, a very healthy level. Net gearing ratio, 28.2%. Debt level is healthy. The average borrowing cost dropped from 3.24% to 2.92%. Full year CapEx for 2022 is estimated at USD 1.23 billion, 30% of which will be spent on investments and the remaining 70% will be on terminal equipment and machineries. We will continue to leverage on our low leverage advantage and identify good projects with great developmental potential and continue to have a good terminal asset portfolio. Now I will pass the time -- pass to Mr. Zhang to talk about operational review.

Thank you. I will take you through the operational review. In 2021, global economy and trading began to recover, but COVID brought uncertainties to global economies. Our company's total throughput of the year reached 129 million TEU up by 40 -- 4.4%. Our subsidiaries throughput 23.38 million TEU, up 4.7%, which is 18.1% of total throughput. Non-subsidiary terminal throughput was 106 million TEU, up 4.4%, which represents 81.9% of total throughput. In terms of geographical breakdown, for Greater China area, throughput with 99.28 million TEUs, up 4.1%, which represented 76.8% of total throughput. Overseas terminals 30.01 million TEU, up by 5.5%, representing 23.2% of turn throughput. [ Of course ] speaking, external ports are performing better compared to internal trade ports. Hubt ports enjoy faster growth compared to second to third tier ports, mainly because of the drive from external trading, we are reallocating our assets to such routes. Because of the pandemic supply chain [ tested the staff ], and other companies would like to saw us protect their classical core hub cost. So other smaller ports have seen certain de-linkage, leading to such an impact on our smaller ports that focus on internal trade. But we act swiftly and grasped growth opportunities from external trade. And we very quickly introduced some external routes for example, for Xiamen port. In terms of throughput, equity throughput, in 2021, it went up by 3.7% to 39.87 million TEUs. Greater China, we have outperforming Xiamen terminals with total growth of 22.7%, mainly coming from bigger assessment from ship owners and additional external trade routes. We have seen very good performance in this segment and total loss is showing very positive trends. For overseas subsidiaries, the best-performing one is Zeebrugge because a certain European port has been affected and congested leading to certain temporary linkages. We have introduced many routes driving up our whole year equity throughput by 53.4%. We'll continue to grasp opportunities and expand our global network so that we can provide better services upstream and downstream. We've been dedicated to optimization of our global footprint and expansion of our network. At the same time, we will leverage on the advantages created by various shipping alliances ports to achieve synergies and maximization of value. Seven major subsidiary terminals, TEU went up by 3.4%, which is steady growth. Coming from COSCO SHIPPING and OOCL, the contribution grew by 7.6% and 19.0%, respectively. For Evergreen + CMA, went up by 11.5%. OCEAN Alliance grew by 10.1%. In the year, most of our terminals came from COSCO SHIPPING and OOCL especially creates benefits coming from Zeebrugge. Guangzhou terminals benefited from CMA opening of new linkages and routes with TEU growth. Xiamen Terminal has relied on the support from OCEAN Alliance to leverage on opportunities in European and U.S. routes we're increasing to. If we look at total throughput, our performance was #1 in the world. We'll continue to take good use of opportunities, including M&A opportunities or identify projects from various emerging markets and accelerate the expansion of our portfolio. When we acquired new projects, we will consider a low double-digit for internal IRR to create great value for our shareholders. We will continue to optimize our international footprint. So far, we have acquired 3 projects, including 2 that have been delivered. And another one that will be completed in the first half of this year. First is Tianjin Container Terminal, which was completed in December 2021. 8.64 million TEU achieved accounted for approximately 40% of total throughput of the Port of Tianjin. It became our first subsidiary terminal in the Chinese hub port, further strengthening our industrial layout. In the Northern China region, this project is of great strategic importance to COSCO SHIPPING. The second one is RSGT, which was completed in July 2021. It has wide coverage of container market in the Middle East and East Africa, bringing growth momentum. This annual capacity reached 5.2 million TEU. The third one is CTT terminals in Hamburg, Germany. We are optimizing our global port portfolio, providing high-quality supply chain processes. We are actively moving forward on this. We have been actively disposing certain terminals with low financial attractiveness. For example, we have disposed 3 such terminals. We believe that the selling off noncore assets will create revaluation of our stock. We will further work on the development of Nantong terminal and Wuhan Terminals. On the 26th of January, CP -- COSCO SHIPPING and Port of Zeebrugge agreed to extend the concession of CSP Zeebrugge terminal by 15 years to 2055. We currently hold 85.45% stake in the terminal with more than 1,200 meter quay length and 17.5 meter depth alongside. Terminal has strong volume growth momentum with a 3-year throughput growing from 884,000 TEU in 2019 to 931,000 TEUs in 2021. Its terminal profits turn positive in 2020 and the 3-year term of profit increased from a loss in 2019 to a gain of $0.27 million in 2020. As in transportation hub leading to all directions, the Port of Zeebrugge has good road and rail connecting various countries in Europe as well as coastal ports in Northwest Europe, Central Europe and Eastern Europe. The concession extension of new opportunities for the port. The goal of concession extension is to optimize the port infrastructure within the framework of our intended clean port strategy and continue to strengthen the terminal as an international logistics hub. In terms of our supply chain business, we are actively developing high-end source services to gradually optimize our logistics network and more effectively for our clients and attract new clients to use our extended services to create new growth momentum for our profit. We have achieved very good progress for the following 4 terminals: The first one is CFS in Abu Dhabi Phase 1. In terms of marketing, we have actively promoted our marketing work with CFS, equipping it with the latest IT system. It was commissioned in October last year. Second, about Lean Operation for CFS Zeebrugge project, it covers 42,000 square meters, utilization rate at 100%. In terms of project engineering, Xiamen Terminal is now developing high-end storage services, which will be commissioned in 2023. Finally, development and planning. Our project in Peru and other subsidiary terminals, supply chain projects are moving along smoothly. We are constructing this new technology. In terms of IT innovation, we've actively optimized our ecosystem for operations and promoted upgrade to our industry automation upgrades and also upgrade for our supply and logistical chain. We have expedited the progress for Navis N4 to enhance the quality of data created. In the next 3 to 4 years, we will use the system in most of our subsidiary terminals to further enhance our efficiency. At the same time, we will continue to enhance our information services. We have already joined GSBN blockchain alliance so that we can, in an open and collaborative manner, create the first blockchain alliance in the industry so that we can promote reform and innovation on our procedures. Finally, we have deepened the construction of 5G smart port Xiamen terminal as our demonstration port for 5G smart application. We have been using manless operations and trucks. We'll continue to promote such usage in other suitable subsidiaries. We have launched the EAM construction and at the same time, established our MIS system at our headquarters. We will continue to promote IT and innovation and move along quickly with information, development and do better in terms of allocation of our capability. Now let's look at our strategy and outlook. We have been actively promoting global footprint and expansion of our network. In recent years, we have expanded our global network very rapidly, but we still need to speed up the enhancement of this network to provide better services to shipping companies, and we will focus on some important projects. In terms of lean operations, we will insist on value creation. We will focus on priority marketing work for our subsidiaries and continue to expand the market and identify more opportunities in terms of routes. Secondly, we'll continue to do well in lean operations in front of our efficiency and management level. In terms of increasing our revenue, we will continue to optimize our sales structure and strengthen synergistic effects with other shipping companies. In 2021, we have added 27 routes. We're seeing an enhancement of 7.6% in relation to ASP. In relation to PCT, the ASP went up by 14.4%. We'll continue to strengthen marketing inside and outside of alliances, identify more portfolios and packages for our clients offer attractive routes so that we can be enjoying more negotiation power. This year, we've seen fluctuations caused by COVID, inflation and also regional conflicts. They will continue to create challenges to our development. China's development is still in this important strategic phase. So we have a very strong domestic market and good supply system, providing good support to the domestic economy. So the fundamentals, which are very positive, have not changed. RCEP will also create new momentum to as Asian logistical transportation and terminal businesses. We will continue to expand our network and emerging markets, actively participate in reconsolidation to drive growth in Greater China and overseas terminals. We will also continue to rely on lean management to realize and strengthen our existing asset portfolio, so that we can enjoy sustainable and quality development. Other than actively developing our business as a sustainable operator, we're dedicated to creating benefits to our community based on the Sustainable Development Goals of the United Nations. We have identified 5, which are most relevant: quality education, decent work and economic growth, industry innovation infrastructure, climate action and partnerships for the goals. In relation to SDG 4, we provide quality training and education to our staff to cultivate talent and ensure professionalism for our sustained growth. So we have created this inclusive, harmonious, safe, fair and highly effective working environment so that we can be people-oriented and attract talent from around the world. In relation to SDG 8, we encourage sustained and inclusive economic growth that can provide economic activity. So we will continue to identify ways to make community contributions to achieve win-win. In relation to SDG 9 and 13, we believe -- we need to facilitate 5G development to improve operational efficiency and offer quality services. We invest in building green ports to combat climate change and its impact. By developing smart ports, we can enhance working efficiency and quality. We will continue to show the responsibility towards our supply team and incorporate ethics into our business, creating a better commercial environment. Our sustainability work is based on action plans and also the 5 SDG objectives. We want to create positive impact through different communication channels. We maintain close liaison with all the stakeholders to carry out important assessments so as to fully understand the expectation and suggestions in relation to such sustainable development targets and daily operations. We also need to ensure that our directors are in line with our development plans. We will focus on 5 areas: caring for our people, customers first, green development, win-win cooperation and investing in communities. We have always been adhering to the highest level of corporate governance by being open and transparent to show our commitment to the society. We've maintained high percentage of independent directors to protect the interest of smaller shareholders. We also ensure that we strike the best balance between our business development and the interest of stakeholders, which will ensure healthy development of our company. We believe that diversification of the Board will enhance overall governance level and more effectively promote sustainable development and maintain our competitive edge. In order to strengthen our supervision on ESG matters and further promote all the implementation of policies and measures, we have set up this ESG Committee. And that's Chairman of chairing this committee and their members to ensure that the committee has high level supervision and independence and at the same time, ensure effective implementation of measures further perfecting risk management under ESG. COSCO SHIPPING has actively launched a number of strategies. We focus on global footprint and lean operations. And then our major pillars include information, construction, supply chain expansion, organizational and talent control. While we continue to expand our asset scale, we enhance effectiveness of our terminal portfolio and show stable development. Under the leadership of the Board and ESG Committee, we will continue to enjoy long-term healthy development and realize our strategic objectives in becoming the leading comprehensive port operator. Now we will enter the Q&A session. We welcome your question.

[Operator Instructions] The first question is in relation to the matter of throughput, which has attracted a lot of attention. [Audio Gap]

[Interpreted] The question was concerning the throughput issue, which attracted a lot of attention from our investors. So what is the projection for throughput volume for this year? And what measures have you adopted?

[Interpreted] Those level has exceeded those that focuses on internal trade. The growth of our hub ports also outperformed those for second and third tier ports. This is mainly because of the very booming external trade conditions and also because of chaotic supply chain, which was affected by the COVID pandemic, leading to smaller ports delinkaging their routes, driving down the overall throughput. For our overseas terminals due to chaotic land transportation, we have grasped certain opportunities at our subsidiary terminals. For example, our terminal in Xiamen have increased a number of routes and the throughput level actually grew by [ 22.0 ] because of congestion at various ports in Northwestern Europe, we have seen some new measures leading to a throughput and complement of 52.9%. Looking forward to 2022, with recovery of normal capacity, we believe the demand level will go back to the normal level. and we will incorporate new routes in all our terminals in accordance with our 5-year plan.

[Interpreted] The question from Citibank was in relation to global port congestion problems, how has that affected the company's operations and performance?

[Interpreted] The answer was in recent months due to a number of bottlenecks appearing in relation to land transportation, we have also seen a lot of stockpiling in various container ports, and that has created a rather substantial impact on our overall capacity. But if we adopt the revenue angle, because we are charging a number of temporary fees, we have seen growth in terms of the total revenue and also the ASP. For example, we have seen some vessels working overtime, and they needed temporary linkages and the relevant arrangements are negotiated on a case-by-case basis. So that actually created a positive impact on our overall revenue. We have successfully grasped the current opportunities in the market, and we have asked for higher fees and charges, and we have seen very satisfactory outcome so far. So this is actually going to become one of the important thinking in our way forward.

[Interpreted] The question was in relation to the loading and unloading fees in 2022, can you share some highlights?