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CITIC Pacific net up 44pc

Katherine Ng

Thursday, August 23, 2007


Beijing-backed CITIC Pacific (0267) said first-half earnings surged 44 percent as the profit contribution from its special steel business doubled. Gains booked from the spinoff of its telecom unit also helped lift the bottom line.
The conglomerate yesterday posted a net profit of HK$4.97 billion, or HK$2.25 a share, in the first six months from HK$3.44 billion a year ago. Turnover was HK$19.6 billion.

With exceptional income of HK$1.9 billion booked from the separate listing of CITIC 1616 (1883), the company declared a special dividend of 20 HK cents, on top of the 40 HK cents basic interim dividend.

Although analysts had cautioned that falling price of steel may slow down the contribution from the steel segment, CITIC Pacific chairman Larry Yung Chi-kin believes earnings momentum will depend on non-core asset sales this year and next. He said he remained confident that earnings would be between HK$6 billion and HK$7 billion next year, compared with an estimated HK$5 billion for full-year 2007.

Yung admitted that property and iron ore businesses will not generate significant profit until 2009, and as a result next year's income growth will largely depend on the steel business and also asset sales.

Managing director Henry Fan Hung-ling confirmed overtures had been made by third parties over the possible sale of a 25 percent holding in the Air China Cargo joint venture.

Yung said: "We have a lot of assets for sale, so we are not worried about next year's profit growth. However, recurrent earnings growth is the key concern, and we will make sure next year's growth will not be less than in 2007.

"Demand in China for special steel, such as bearing steel and gear steel, is expected to remain strong, which could help the sector remain the substantial profit contributor this year and next."

Fan said CITIC Pacific planned to inject between HK$5 billion and HK$10 billion for expansion of steel plant production lines. This, he said, would raise total annual capacity to 10 million tonnes, from the existing seven million tonnes. He said the capital injection plan is at a "preliminary stage."

During the first half, in the absence of special gains from Festival Walk, contribution from the property segment slumped 81.2 percent to HK$370 million, from HK$1.97 billion a year ago.

Still, Yung remains bullish on mainland property considering that the "economy is expanding and internal demand is growing."

As of June, CITIC Pacific possessed a landbank of about 3.5 million square meters, according to deputy managing director Peter Lee Chung-hing. "We have added more land during the first half, including the Shanghai underground station site," he said.

Yung said CITIC Pacific would sell a further 20 percent stake in the Pilbara iron ore mine in Western Australia.

Shares of CITIC Pacific gained 3.22 percent yesterday to HK$36.85.