Improving demand and a shortage of containers has been good for Singamas, as its interim balance sheet reveals.
In the dark and desperate days of 2009 when the global financial crisis brought trade to a standstill, the world’s two main container makers stopped making containers.
Between China International Marine Containers and Singamas Container Holdings, they held around three quarters of the global container market.
Then in 2010 when Asia’s export machine rumbled back into life as inventory replenishment orders flooded in from the US and Europe, it took the container manufacturers, and everyone else, by surprise.
Even though the manufacturers ramped up production, significant equipment shortages began to spring up, a source of intense frustration to shippers desperate to deliver orders after a year spent kicking their heels.
The shortage, though, was great news for container makers because it forced up box prices. Some people might say that companies such as CIMC and Singamas cut production for longer than necessary to ensure that demand would far outstrip supply when the inevitable business recovery returned.
We're not saying that the profits were excessive. We're just saying that the first half net profit of Singamas blew the roof off the accounting department. It was up 900 percent on the first half of 2010 and it won’t surprise anyone to hear that the US$101.9 million was a record-busting profit.
Singamas sold 394,310 units in the first half against 236,190 in the same period last year. That’s just a paltry 40 percent increase in the number of boxes, but the cost per box went up by 22 percent. Revenue doubled and the company’s 11 factories were operating at 93 percent between January and June, no doubt to produce enough containers to transport Singamas’ profits to the bank.
It was an impressive interim result and Hong Kong gamblers responded by buying stock, sending the share price of Code 0716 up 11 percent yesterday.
However, a company is only as good as its last financial report and the full 2011 results will not be as buoyant. There probably won’t be any red ink required in compiling the full-year figures, but shipping lines and leasing companies were already scaling back orders, according to vice-chairman Teo Siong Seng.
Slowing demand as the US and Europe battle their debt issues will have an impact, but Teo reckons this will be temporary and container replacement orders will be back to normal next year
But if Teo is wrong and another global recession sets in, you can bet Singamas and the other container makers will closely follow the business model that saw them through the financial crisis and sent profits soaring in the aftermath.
It’s a formula that can’t lose.