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CSBC Says Profit May Fall on Low-Margin Taiwan Orders

Paul Tang, president of CSBC Corp.
Paul Tang, president of CSBC Corp., poses for a portrait in Taipei. Photographer: Maurice Tsai/Bloomberg

Aug. 10 (Bloomberg) -- CSBC Corp., Taiwan’s biggest shipbuilder, said profit may fall this year as it works through low-margin orders placed by government-owned companies during the global recession.

“There’s no money to be made from these contracts,” President Paul Tang said in an interview in his Taipei office yesterday. Orders for tankers from refiner CPC Corp. and for coal ships from Taiwan Power Co. did help the shipyard weather the economic slowdown and a global slump in order, he said.

An economic rebound has now revived demand with vessel prices rising at least 10 percent from the lowest point during the global recession, Tang said. Evergreen Group and Neptune Orient Lines Ltd., Asia’s two largest container lines, both ordered new ships last month as U.S. and European retailers boost purchases of Asian-made toys, furniture and auto-parts.

“The container-shipping market is improving after having several bad years as the global economy recovers,” said Michael On, president of Beyond Asset Management Co., who rates CSBC “neutral.” “Orders for new vessels may increase.”

Production at CSBC, as measured by steel work, bottomed in the first half, Tang said. The shipbuilder, which has a yard in Kaohsiung in southern Taiwan and another in Keelung in the north, is fully booked through the first half of 2013, he said.

“It looks like the market had reached its lowest point,” Tang, 64, said. “It’ll be clear in late 2011 or 2012 if the recovery stands.”

Shares Pare Gains

The shipyard climbed 3 percent to NT$27.85 at the 1:30 p.m. close of trading in Taipei, paring gains of as much as 5.7 percent. Taiwanese shipping stocks rose today after the Baltic Dry Index, a measure of commodity-shipping costs, jumped the most in more than two months yesterday, said Daniel Tzeng, an analyst at Fubon Securities Co. in Taipei.

CSBC made an unaudited net income of NT$878 million ($28 million) in the first seven months of the year, according to an Aug. 6 stock exchange filing. There was no year-earlier comparison. Sales fell 26 percent in the period.

Last year, annual profit more than doubled to NT$2.46 billion. Profit this year will likely decline, Tang said, without elaboration.

Container ships account for more than 70 percent of CSBC’s output, Tang said. The company also builds bulk carriers and oil platforms, he said. Vessel prices fell at least 30 percent because of the global financial crisis, he said.

Neptune Orient ordered as many as 12 container vessels from Seoul-based Daewoo Shipbuilding & Marine Engineering Co. last month. The deal was valued at as much as $1.2 billion order.

Evergreen Group, based in Taipei, ordered 10 vessels from Samsung Heavy Industries Co. on July 2 as part of a plan to buy 100 ships. The line may order 12 container ships from CSBC, the Economic Daily News reported July 3. Tang declined to comment on the report, citing a confidentiality agreement between the two companies.

To contact the reporter on the story: Yu-huay Sun in Taipei ysun7@bloomberg.net

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

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