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

Dear investors and friends of the media, good afternoon. Thank you for your attendance at our first half results presentation. We have a mixed mode today. And we have Ms. Wu Yu, our Managing Director; Deputy General Manager, Mr. Chen Yipeng; Mr. Zhao Fengnian, our Chief Accountant. We are going to take you through the performance highlights and also operational review. Later, we'll take your questions. Madam Wu, please.

Thank you very much. Dear investors, friends of the media, good afternoon. I am Wu Yu, Managing Director for the company. First of all, I would like to welcome all of you to our first half results presentation. On behalf of the company, I would like to extend our gratitude and welcome. Thank you very much for your long-term support and concern. And we would like to use this opportunity to make exchanges with you on site. Concerning today's presentation, there are 5 parts. We have the key highlights, financial performance, operational review, strategy and outlook. And finally, we will have the Q&A session. First of all, let's go over the company's key highlights. In the first half of '25, the global economy continued to grow at a slow pace, and there continue to be changes in trade policies and geopolitical risks. We leveraged its global the company's global network and synergy with other COSCO SHIPPING brands to seize the opportunity presented by the surge in trade demand during the phase, achieving double-digit growth in throughput and profits, demonstrating strong capabilities in handling risk and operational resilience. In the first half, we achieved total throughput to 74.3 million TEU, a rise of 6.4%. Revenue increased by 13.6% to USD 806 million. EBITDA up 10.5% to USD 445 million. Net finance cost decreased by 14%. Profit attributable to shareholders reached USD 182 million, up 30%. Against the backdrop of profound adjustments in the global economic and trade landscape and complex geopolitical developments, we have actively seized market opportunities, continuously strengthened our core hub layout, improved operational efficiency and adhere to high-quality development to positively respond to external uncertainties. We leveraged our globally connected network and the synergies of our dual brand strategy resulting in year-on-year growth in total container throughput revenue and profit attributable to equity holders. Mr. Zhao will now take you through the financial performance.

Thank you. Dear friends from the media and investors, good afternoon. I will now take you to the second part of our presentation. In the first half of the year, we achieved new results in improving quality and efficiency with both revenue and profits recording solid growth. Revenue increased by 13.6% year-on-year and gross profit increased by 10.3% year-on-year. The company continued to optimize the management and profitability of our equity method investees promoting their coordinated development. In the first half, profits from joint ventures and associates increased by 13.1%. In terms of net financial cost, we strengthened financial expense control, further reducing financial expenses through measures such as optimizing debt structure. Net financial costs decreased by 14% year-on-year in the first half, demonstrating significant cost control effectiveness. Our net profit attributable to equity holders increased by 30.6%, primarily driven by profits from Guangzhou Nansha Terminal and Tianjin Terminal in the PRD region, which increased by 59.8% and 10.9%, respectively. Overseas, this was primarily driven by profits from Greece PCT and CSP Spain terminals, whose profits increased by 93.8% and 68.6% year-on-year, respectively. Dividend payout ratio remained unchanged at 40% with a dividend of USD 0.01928 per share, representing an increase of 23.6% year-on-year. Now let's look at our revenue and GPM. In the first half, revenue rose by 13.6% year-on-year, while the GP margin was 27.2%. For subsidiary terminals in China, revenue went up by 1.1%, while GP margin was 36.2%. GPM of Xiamen Ocean Gate and Guangzhou Nansha Terminals remained above 40%. In the future, we will continue to build differentiated and one-stop value-added services at Xiamen Ocean Gate Terminal to promote growth in value and strengthen its role as a regional hub. We will enhance the operating capacity of Tianjin Container Terminal, increase the volume from nearby cargo sources, making it a new hub port for CSP in Northern China. At Guangzhou Nansha Terminal, we will continue to develop the bulk to container change of cargo type to strengthen logistics efficiency and network service capability in the PRD. We will improve Yangtze River and Inland River feeder network, expanding cargo sources from railways in Wuhan terminal, optimizing route capacity allocation, achieving a significant increase in throughput. For overseas subsidiary terminals, revenue increased by 25.9% with GP margin growing by 3.3 percentage points. The PCT terminal in Greece has handled the unfavorable effects of the Red Sea incident very well, strengthening cooperation with shipping companies to increase throughput and increasing marketing strategies, driving revenue to grow by 27.9% and GP margin rising by 2 percentage points to reach 21.4%, increasing competitiveness. CSP Spain revenue rose by 13.1%. GP margin increased by 1.6 percentage points. We'll continue to focus on consolidating its regional advantages to play a more important role in the land and sea corridor between China and Europe to improve operational performance. At Abu Dhabi Terminal, we will continue to strengthen marketing strategies to shipping lines within and outside of COSCO SHIPPING Group increased the number of routes and improved operational efficiency, driving revenue to grow by 10.9% and GP margin to increase by 3.5 points. We will also continue to increase the overall competitiveness of Chancay Terminal in Peru while improving operational efficiency. We will also increase marketing efforts. Now let's look at the profit distribution by region. In the first half, terminal profits reached USD 242 million, an increase of 19%. Terminal profits in China reached USD 185 million, up 0.8%. We will continue to integrate into regional coordinated development and enhance the capacity of domestic terminals. while focusing on the coordinated development of the Beijing, Tianjin, Hebei region, the integration of the Yangtze River Delta, Guangzhou, Hong Kong, Macau Greater Bay Area and the new [ Western Landsea ] Channel, we will continue to strengthen cooperation between domestic and international trade routes. For overseas terminals, profits went up by 187.4%. Profits in the Mediterranean and Middle East region rose significantly by 149.9%, mainly benefiting from the PCT's improved operational efficiency and accelerated container transshipment and throughput rising 4.9% year-on-year and net profit rising significantly by 93.8% year-on-year. The Europe region saw a significant increase of 297.1%, mainly due to CSP Spain, which increased its efforts to introduce new routes and enhance ports reach, resulting in 6.2% increase in throughput and 68.6% increase in profits, driving the profitability of the entire European region. In the future, we'll continue to focus on the Chinese market while taking advantage of the dual drivers of domestic and international markets, focus on global network channel opportunities, expand overseas markets, improve stable revenue growth and continuously optimize our portfolio's profitability. In terms of the balance sheet, by the end of June, the company's cash and bank deposits amounted to USD 1.28 billion, of which renminbi accounted for approximately 41%, euro 19% and US 37%. Total debt amounted to about USD 3.25 billion, renminbi accounted for about 30%, euro 17%, USD 51%. Capital expenditure in the first half, USD 160 million, about USD 26 million was spent on investments, about USD 134 million was spent on fixed assets, mainly on CSP Chancay and CSP Spain, amounting to about USD 98.9 million and USD 11.7 million, respectively. The net debt-to-equity ratio was 26.7%, and it has been stable at a low level in recent years. In the future, we will continue to capitalize on the advantage of our low leverage and focus on emerging markets with high development potential. As for the average bank borrowing cost, it dropped to 4.7% during the first half. We strengthened capital planning and management strategies took advantage of our scale and reduce our financial cost as a whole, realizing a decrease of 14% in net financial cost. In the second half, we'll closely monitor changes in monetary policy by major central banks, actively expand banking resources, leverage the company's bargaining power, optimize existing loans, negotiate reductions in existing loan interest rates or replace them with loans at lower interest rates in advance, further reduce financial costs and promote high-quality development of the company's overall profitability. Now let us turn to Mr. Chen.

Thank you, Mr. Zhao, for the detailed introduction about our performance. Dear investors and friends of the media, good afternoon. I will now take you through the operational details. In the first half, our total throughput reached 74.3 million TEU, up 6.4% with an increase in China and also overseas. The total throughput of China terminals reached 56.39 million TEU, up 5.7% year-on-year, mainly driven by the strong growth of the Bohai Rim, Yangtze River Delta and Southwest Coast regions. In the first half, we expanded the coverage of ports in China, increased the joint marketing efforts of subsidiaries led by the headquarters and improved operational capacity through market expansion, improved operations and smart ports. Total terminal throughput in overseas regions amounted to 17.91 million TEU, up 8.4%. Based on our global route network, we are focusing on enhancing the hub operational capabilities of terminals such as Chancay in Peru, PCT in Greece and Zeebrugge in Belgium, in line with the handling capacity and service requirements of major shipping companies. In the future, we'll continue to improve our network layout and strive to build overseas port hubs. Equity throughput rose 3.8% to 22.88 million TEU. Equity throughput of China terminal rose 1.8% year-on-year to 16.14 million TEU with significant year-on-year increase in the Yangtze and Pearl River Delta regions driven by CSP Wuhan terminal. In line with the overall trend of inland waterway transportation development in China, multimodal transportation business is expected to see significant growth potential at Wuhan, which is why we have increased our equity stake to full ownership. We continue to deepen the development strategy of the Yangtze River economic belt, leverage the advantages of rail water intermodal transportation. Equity throughput of overseas terminal, 6.74 million TEU, an increase of 8.7%. We will explore further growth opportunities from new routes and shipping alliances and the restructuring and upgrading of the industrial chain, particularly by capitalizing on opportunities such as Asian regional integration, sales cooperation and cross-border e-commerce. The container volume of subsidiary terminals was positive, up by 3.6% with international routes up by 6.6%. Throughput of the company's 9 major subsidiary terminals showed steady growth, benefiting from dual branding strategy, COSCO SHIPPING lines and OOCL contributed significantly higher volumes, up 10.5% and 11.6%, respectively. We actively responded to market changes and route adjustments by innovating our marketing model, continuously introducing new routes, promoting inter-terminal cooperation and striving to attract more routes to its controlled terminals. As a result, container volume from MSC and other shipping alliances increased by 13.2%, expanding our cooperation with major shipping companies. In terms of ASP, calculated in euros, the company's European subsidiary terminals saw a year-on-year increase of 10.3%, mainly due to the continued strong performance of PCT in Greece and CSP Spain. In the second half, we will actively respond to internal/external market changes, focusing on strengthening domestic and international trade channels, network construction and extended business development while continuing to expand our business scale, optimize cargo structure and increase revenue. We will establish a diversified global supply chain system through comprehensive products, marketing operations and customer service. We'll strengthen the foundation of port operations through the integrated development of hubs, channels and networks to optimize the structure of our global shipping routes. We are promoting the development of supply chain resources and advancing multimodal transport operations, creating a new global logistics supply chain ecosystem. The following are the results achieved by several key projects. For the Xiamen Haitou CFS project, we will strive to maintain a high usage rate, optimize warehouse space planning at the logistics park, enhance space utilization through centralized management and expand Southeast Asian shipping routes. Second, at Xiamen Haicang CFS, we'll continue to increase our promotional efforts focused on connecting with leading local enterprises, deepening internal coordination with the group and closely collaborating with Xiamen COSCO SHIPPING lines, logistics and chemical companies to achieve good results. At Abu Dhabi CFS, warehouse utilization rates approached saturation level. We're building a large-scale logistics project center in the Middle East and the CFS project has obtained Abu Dhabi National Oil Company's full category logistics supplier qualification, becoming the only Chinese company to obtain this qualification. Relying on this, we can provide comprehensive services covering heavy cargo transportation and warehousing, significantly enhancing our competitiveness. At Zeebrugge CFS, we'll continue to explore market opportunities and focus on the construction of sea rail intermodal transport channels by integrating the resources of the terminal and railway stations and leveraging the abundant customer resources of COSCO SHIPPING Group in Europe. We will build an efficient and stable 2-way logistics corridor. We strengthen the function of the port area as a gateway to Northwest Europe and provide a fundamental channel for business expansion in the Northwest European market. The global port and shipping industry is shifting from single point competition to ecosystem competition. We need to accelerate our leading role in smart port construction continuously promote unmanned container truck operation and achieve economies of scale, strive to achieve improvements in efficiency and scale. To accelerate the integration of cutting-edge technology with port operations, 5 terminals in Xiamen, Chancay, Wuhan, Abu Dhabi and Peru have fully transitioned to commercial scale operations and large-scale application of unmanned container trucks, achieving an average cost reduction of 10% per container. In the first half, the cumulative operational volume of unmanned container trucks reached 530,000 TEUs, representing an increase of 69%. All China subsidiary terminals as well as CSP Abu Dhabi utilized the EAM system. Since implementation, terminals have deepened application of the system, effectively helping standardize processes and management with cost saving and efficiency-enhancing results. We are also continuously developing AI technology application with the EAM system to further enhance intelligence, efficiency and convenience. Transitioning from traditional operations to a new operational model requires the vigorous promotion of advanced information technologies such as 5G, AI, Internet of Things and cloud computing. We will continue to focus on building replicable smart and efficient modern ports moving forward towards large-scale application and comprehensively forging a new ecosystem. I will now hand over to Madam Wu.

Thank you very much. Let's take a look at our strategic plan and outlook. As our global portfolio continues to grow, we'll continue to strengthen our network and optimize allocation of resources, accelerate the pace of innovation and improve operational efficiency. First, centered on Belt and Road initiative, achieve new breakthroughs in globalization, we'll focus on our core business and strengthen global hub network and the core roads. We will grasp development potential and opportunities in emerging markets and accelerate our investment in Southeast Asia, South America, Africa and other regions. Second, we focus on lean operations and improve efficiency. We'll focus on these internal and external synergies to improve our operations. Through flexible commercial terms and differentiated services, we'll seize opportunities brought about by increased demand in transport, continue to introduce new routes and strive to secure additional ship calls. We'll continue to explore new methods of cost control, leverage our scale competitive advantage and explore opportunities for value enhancement. Thirdly, upgrading supply chains to create new momentum for integrated development. We actively participate in our shipping plus port plus logistics and Hub plus channel plus network integration policies to respond to changes in the value chain and grasp opportunities from the supply chain. We'll continue to develop integrated supply chain logistics services that seamlessly connect shipping routes, ports, terminals and land transportation. We're committed to strengthening innovation and upgrading green and smart ports. We are aligning with the latest development concepts to establish a digital system and completing the implementation plans for the short, medium, long-term development of AI. In terms of green and low-carbon development, we're working together to build a global green transportation channel for post and shipping, driving the industry towards accelerated evolution of zero carbon supply chain. In the first half, we continue to strive to achieve our commitment to carbon neutrality by 2050 and systematically promote the deep integration of ESG and production and operation management around the 5 pillars of sustainable development, integrity and women cooperation, resilience for the future, agility and innovation, caring for nature and dynamic progress and integration to achieve the 3-in-1 integration of the company and its value chain in the economy society and natural ecology. The company has received high recognition from leading domestic and international ESG rating and index companies, including wind ESG rating of AAA rating from [ Hang Seng ] ESG rating, ranking first in the transportation infrastructure industry and significant reduction in ESG risk exposure with the Morningstar ESG risk score decreasing to 14.8. We will continue to implement sustainable development principles, explore innovative solutions and contribute long-term value to the construction of a digital intelligent and green low-carbon port ecosystem. Looking forward, we'll actively seize development opportunities adhere to serving market demand focused on emerging markets and regional markets. Especially major regions and markets where major shipping alliances have added new routes and capacity and focus on investing in global resources. Although uncertainty of global economic recovery still exists, our economy has a stable foundation, strong resilience and great potential and the supporting conditions and basic trend for long-term improvement have not changed, helping us to steadily realize high-quality development. As the emerging economies transition from being participants to growth engines, forming more balanced and diversified global economic system, this brings new growth momentum. We will take advantage of new trends of the global economy and trade use our global portfolio as the core development strategy and continue to improve the quality and efficiency of the terminal portfolio while the company's asset scale continues to expand. We'll also promote the company's high-quality and sustainable development, accelerate progress towards the goal of constructing a customer-centered global leading integrated port logistics service provider. This concludes our presentation about the market conditions and operating performance in the first half. Once again, our dear guests, we would like to express our sincere gratitude to all of you for your continued support. Moving forward, we will closely monitor changes in the port and shipping industry landscape and contribute to the stability of the global logistics supply chain. Through our efforts to enhance operational performance, we aim to maximize value for our shareholders. We'll now proceed to Q&A session. We welcome any questions from you.

Thank you very much for the presentation. We'll start the Q&A. We welcome questions from on-site and also online participants. Please tell us who you are and who you represent.

I'm from [indiscernible] we are quite concerned about [ Quanzhou 's sales ] of the 2 terminals in -- or the 2 ports in Panama. Did you participate in the transaction? What is the progress of that transaction at the moment? Is it possible that concerning the transaction, you will only consider overseas ports other than those in Panama? And what about the U.S. Sino trade disputes? Things seem to be calming down. So does that mean you are looking at more positive signs? What is the outlook for the second half?

Well, thank you very much for your question. There is no comment for the first part of your question, but I can talk about the second part. We have seen some policy fluctuations causing certain impact on stability. In May, concerning the trade negotiations between U.S. and China, they have been progressing well. But the market is also warming up and prices continue to climb until the middle of June. Concerning the tariff initiatives from the U.S., we are going to restructure our global supply chain. So the composition of our supply chain will continue to be more diversified. Against this backdrop in Asia, the freight costs may be stabilized, facing tariff changes or policy changes on the tariff front from the U.S. We will stay very close to such changes. We will be prudent and stay agile towards demands of our consumers. We will adopt the right initiatives to respond to market changes and make plans well ahead of time. We will also strive to enhance our operational efficiency, increase the stickiness from our customers to confront the uncertainties in the market and ensure our stable development.

Do we have any questions from on-site investors? All right. Perhaps we can take questions from online from Goldman Sachs.

The question is about throughput situation at the ports and looking forward in the second half, some insights from the management.

Concerning second half outlook, I want to tell you that at the moment, when we think about the second half, the overall economy and also shipping business, there will be restructuring at a deep level because of certain uncertainties in the market. IMF in July, in their economic outlook, they believe that the growth -- global growth would be about 4.3%, which is a slight downward adjustment considering the external uncertainties faced by China. With the support of various policies, we believe that domestically, things will be rather stable. And IMF has readjusted its outlook to 4.8% for global growth and China being one of the major drivers behind that. External trade is still agile with its normal level of tenacity. And we see 2.9% improvement for external trade to EU, Korea and Japan, import and export also showed rising trend. So concerning the global ports throughput level, according to the latest Q2 report, the increase is expected to be at 4.4% and in North America, 10.5% growth and Central Middle East and Southeast Asia will also be single-digit growth, exceeding our expectation. At the same time, major ports throughput in China, the momentum of growth is strong. According to local authority projections, the throughput level, 1.7 -- 170 million TEUs. In the second half, we are approaching the end of a peak period. So we are looking at some rather obvious decline. So for the whole year, global throughput growth will be 1.7%. For Asia and Latin America, between 1% to 2%. Middle East, South Asia will be closer to the mid-range single-digit growth. Up to 2029, 4.3% growth for South Asia and then 2.6% for Africa and 2.5% for Central Asia. So we are talking about the Greater China region with 29 million TEU increase.

Thank you very much for the management's answer. Do we have any on-site questions?

How concerned are you about pressure from the U.S. on trade restrictions and COSCO's port assets globally? And there's been talk recently from U.S. lawmakers that concern about COSCO's port holdings in the U.S. Could you respond to that, please?

Well, we are very concerned about continuous developments in these overseas ports, and we will try to place our focus on these overseas ports assets. We will continue to adhere to our prudent principles and strive to create and maximize return for our shareholders. All along, we have been serving global trade. That is our major responsibility. So around the world, we continue to have our operations in a legal manner, and we have good collaboration with global ports. And we will continue to identify potential investment opportunities so that we can continue to optimize our global port network.

Thank you very much for your concern. There is an online question from HSBC. There are 3 questions in total. We will answer them one by one. First of all, in the first half, domestic and overseas per container revenue level.

Thank you. Well, let me take that question. In the first half, concerning overseas revenue in the European region grew by 10.3%, mainly that is because in European region, we have relied on CPI elements. We continuously optimize our business with shipping lines also because in the European region, we have seen some changes to our business structure, driving up the revenue significantly. So adding those together, the growth reached 10.3% in Europe. For domestic revenue, there is a decline of 1.9% mainly because in some of our terminals, we have been affected by the tariff changes. For example, Nantong Tonghai Terminal, some of their business has been affected. So the per container revenue also dropped, leading to the overall domestic figure dropping slightly. We'll continue to optimize our business and hopefully bring that up again.

The second question is about first half CapEx and what is the guidance for this year?

Well, I will take that question. First of all, in the first half, the actual CapEx it was USD 110 million. USD 134 million went into fixed assets, concerning terminals such as the ones in Spain and the one in Peru, 90-odd million, and they are the major ones. And then about equity investment, USD 20-odd million. Concerning the whole year, we have made adjustments in midyear about the projection, which is USD 790 million. And that is again divided into 2 parts: investment in fixed assets, USD 600-odd million, mainly on major terminals. For example, the ones in Xiamen, Peru, Spain, Abu Dhabi, et cetera. The other part is about equity investment, USD 179 million.

The final question is about the freight volume. Has that been absorbed already?

Well, allow me to take that question. Actually, we can see in May, there was this wave which was rather prominent. Now demand is cooling off gradually. So the freight cost is slowly coming down. If you look at our port situation and operations in July, actually, we are talking about an increase of 3.9% compared to May and June. This is also a declining trend. If we look at the overall external situation, our projection is Q3 global container business will drop by 0.8%. For Q4, the year-on-year decrease will be about 1.7%. The parent company based on the operation in July and August, we -- it is actually in line with the overall projection.

Okay. Any other on-site questions?

I'm Charles. I have 2 questions. First of all, looking ahead, do we have any plan to acquire any ports in what region? And then what about AI and automation facilities at our ports? What is the application situation? What are your future plans?