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China Merchants Doubles Profit on Cargo, Shanghai Port Stake

China Merchants Holdings (International) Co. doubled first-half profit because of rising container volumes and HK$1.37 billion ($176 million) of gains mainly linked to a stake in the operator of Shanghai’s port.

Net income rose to HK$3.9 billion from HK$1.93 billion a year earlier, the Hong Kong-based company said in a filing to the city’s stock exchange today. The one-time gains were mostly derived from a revaluation of the company’s shares in Shanghai International Port (Group) Co., financial controller Zhang Rizhong told reporters in Hong Kong today.

China Merchants’ recurrent profit jumped 27 percent to HK$2.4 billion as rising shipments of Chinese-made goods to the U.S. and Europe boosted volumes at its port operations. The pace of growth is expected to slow in the second half amid global economic uncertainty, Managing Director Hu Jianhua said.

“We are concerned of a slowdown in China’s port volume throughput from the fourth quarter onwards, particularly for ports in Southern China,” Karen Li, an analyst at JPMorgan Chase & Co., said in a note issued today. “With key exposure in the Pearl River Delta region, China Merchants is uniquely exposed to risk of a slowing global trade environment.”

Li downgraded China Merchants to “underweight” from “neutral” after the earnings were announced.

The port operator has halted talks on an investment in a container terminal in Vietnam recently amid a row in South China Sea, Hu said.

Interim Dividend

China Merchants, the owner of stakes in ports moving about a third of China’s containers, declared an interim dividend of 30 HK cents per share, compared with 25 HK cents a year earlier.

The company gained 2.7 percent to close at HK$24.65 in Hong Kong trading today. The stock has lost 20 percent this year, compared with a 12 percent decline for the benchmark Hang Seng Index. Cosco Pacific Ltd., the terminal-operating arm of China’s biggest shipping group, has dropped 21 percent.

China Merchants’ ports, which include facilities in Shanghai, Shenzhen and Ningbo, boosted first-half volumes 11 percent to 27.6 million containers. Commodity volumes rose 19 percent to 160.5 million tons.

Volumes at the port operator’s home port in Shenzhen fell 0.6 percent in the first half, Hu said.

Cargo volumes at China’s major ports increased 13 percent to 4.4 billion tons in the first half, according to the Ministry of Transport said. Sea harbors had a growth rate of 13 percent, while river ports’ traffic jumped 14 percent.

Vietnam Halt

China Merchants started talks to build a deep-water cargo port near Ho Chi Minh city in 2007 and suspended the negotiations at the end of last year after a territorial dispute between China and Vietnam, Hu said.

“The atmosphere must be different when you are in talks and there are protests on streets,” said Hu. “We don’t have much extra cost on the suspension, except for the time we invested.”

The company has not given up on building a port in Vietnam that will be designed for a capacity higher than the 2.4 million cargo-boxes a year port it plans in Sri Lanka, Hu said.

The port operator will keep expanding overseas as part of its long-term strategy, Vice Chairman Li Jianhong said.

The company and its partners agreed this month to build and operate a container terminal in Colombo, Sri Lanka. The project may cost more than $500 million, making it the company’s largest investment overseas, China Merchants said Aug. 12.

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