Soybean port ipo plagued by trade war

| Avery Chen 10 Jun 2019

Rizhao Port Jurong, a spinoff of Shanghai-listed Rizhao Port, launched its Hong Kong initial public offering recently, aiming to raise as much as HK$600 million.

The Shandong-based company was the largest port for grain and woodchip imports in China in terms of throughput last year, according to the CIC Report. Its throughput of both soybean and woodchip imports ranked first in China and it ranked second for handling dried tapioca imports.

Rizhao Port Jurong was established as an equity joint-venture in March 2011 by Rizhao Port and Jurong Port, a port operator headquartered in Singapore. Rizhao Port Jurong's controlling shareholder Rizhao Port will own 52.5 percent of the issued share capital after the global offering, while Jurong Port will hold 22.5 percent.

The total throughput of Rizhao Port Jurong increased from about 10.9 million tons in 2011 to about 25.9 million tons in 2018 at a compound annual growth rate of 13.2 percent.

The company is situated on the southern coast of the Shandong peninsula opening to the Yellow Sea.

The Port of Rizhao is a major coastal port for commodities trading. It has been ranked the seventh largest coastal port in China and 11th in the world in terms of 2018 throughput.

Rizhao Port Jurong operates and leases eight berths, all of which are at the Shijiu port area in the Port of Rizhao. The company operates four and leased out four of the eight berths. They have a designed annual throughput capacity of 18.1 million tons.

It provides port-related services, including stevedoring, berth leasing, port management, storage, and logistics agency services, mainly for soybean, woodchips, dried tapioca and, to a lesser extent, maize and wheat.

Its core service stevedoring contributed over 77 percent of total revenue in the past three years, followed by leasing of berths, which accounted for about 14 percent of total revenue.

Soybean is the major cargo type, accounting for 56.7 percent of total revenue in 2018. However, China, the world's top soybean buyer, has stopped purchases from the United States amid the deepening Sino-US trade war.

Rizhao Port Jurong's throughput of soybean fell by 1.1 percentage points to 31.1 percent of total throughput last year.

Executive director He Zhaodi says China's soybean imports fell last year due to the trade war, but the company is less affected by trade tensions as customers have increased soybean imports from Brazil and sought more buying opportunities in other emerging markets.

Net profit climbed by 61.96 percent to 126.98 million yuan (HK$144.09 million) in 2017, and further increased by 17.46 percent to 149.15 million yuan in 2018.

Revenue grew by 6.62 percent year-on-year to 520.51 million yuan in 2017, and further grew by 2.2 percent to 532.06 million yuan last year.

The gross profit margin increased by 4.7 percentage points year-on-year to 42.1 percent last year, mainly due to a drop in depreciation cost because of changes in accounting estimates of the useful lives of property, plant, and equipment and investment properties.

However, Rizhao Port Jurong faces a liquidity risk with net current liabilities as of December 31, 2016, 2017 and 2018 and March 31, 2019. Net current liabilities were 115.9 million yuan as of March 31, 2019.

Zheng Shiqiang, secretary of the board, says the company plans to set up the new West-6 berth as its total throughput has exceeded the designed annual capacity.

The company plans to use about 70 percent of the net proceeds for the acquisition of the West-6 berth, 20 percent to buy equipment and machinery for the new berth. And 10 percent will be for working capital and general corporate purposes.

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