Orient Overseas Falls on 90% Profit Drop, 2012 Forecast: Hong Kong Mover

Orient Overseas (International) Ltd. (316), operator of Hong Kong’s biggest container line, fell to the lowest level in two weeks after reporting a 90 percent drop in profit last year and forecasting a “difficult” 2012.

The shipping company dropped 2.9 percent to HK$51.40 at the 4 p.m. close of trading in Hong Kong, the lowest since Feb. 23. The benchmark Hang Seng Index rose 0.2 percent.

Orient Overseas posted a 90 percent decline in profit last year because of industry-wide overcapacity, falling rates and higher fuel costs. This year is unlikely to be better because of an expected increase in new ship deliveries and slow economic growth in Europe and North America, the company said.

“We expect trading conditions to continue to be difficult,” it said in a statement today. “The major markets of North America and Europe are likely to see low levels of demand growth.”

Net income fell to $181.6 million in 2011 from $1.9 billion a year earlier. That compares with the $146.4 million average of 14 analyst estimates compiled by Bloomberg.

Sales fell 0.4 percent to $6 billion. Profit in 2010 was bolstered by a one-time gain. The company also scrapped its final dividend after paying out 23 cents a share a year earlier.

Container Lines Cooperate

The carrier’s average charge for moving a container fell 6.7 percent last year, it said in a Jan. 20 trading update. Volumes rose 5.6 percent to 5 million boxes last year, while container-shipping revenue fell 1.5 percent to $5.5 billion.

Container lines have eased capacity growth and are boosting cooperation in an effort to raise rates. Orient Overseas was among companies that began operating as the G6 Alliance on Asia- Europe routes starting March 1. Other members include Neptune Orient Lines Ltd. (NOL)’s APL Ltd. unit and Hapag-Lloyd AG.

Orient Overseas intends to boost Asia-Europe rates by $450 per 20-foot container from April 1, following a proposed $800 increase on March 1. A.P. Moeller-Maersk A/S, the world’s biggest container-shipping line, and other operators have announced similar plans.

Fuel Costs

“The company’s profitability this year depends on the success of the recent rate hikes,” said Citigroup Inc. analyst Rigan Wong in a statement today. “These rate hikes are expected to stick near break-even for the industry and any attempt to raise them further may result in customers’ resistance and competition.”

Orient Overseas is confident that it can boost rates on Asia-Europe and Asia-America routes further later this year, Chief Financial Officer Kenneth Cambie told reporters today. He also warned the improvement in freight rates could be offset by rising bunker prices.

“I am not too excited about the increase of freight rates, giving the increases of operating costs driven by cost of fuel,” he said. The company will focus on using larger vessels and improve operational efficiency to cope with rising fuel costs, Cambie said.

The price of 380 Centistoke Bunker Fuel, used by ships, averaged $650.03 per ton last year in Singapore trading, compared with $465.54 a year earlier, according to data compiled by Bloomberg.

To contact the reporter on this story: Jasmine Wang in Hong Kong at jwang513@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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