Major Revenue Segments of the Group

 

Overall business environment

The principal activities of the Group are investment in and the development, operation and management of container and other ports, and the provision of port related, logistics and other services including integrated logistics, port and warehouse leasing and the supply chain management and trading services, mainly conducted through its various ports, including the WIT Port(武漢陽邏港), the Multi-Purpose Port(通用港口), the Hannan Port(漢南港), the Shayang Port(沙洋港) and the Shipai Port(石牌港), all located in the Yangtze River Basin in Hubei Province, the People’s Republic of China (the “PRC”) and the provision of construction services, conducted through Zhongji Tongshang Construction.

 

The WIT Port and the Multi-Purpose Port

The WIT Port is located along the Yangtze River in the Yangluo Economic Development Zone, Wuhan, Hubei Province, the PRC.

The strong and well established industrial base of Wuhan featuring operators in major industries, including automobile and its components, chemical, steel, textile, machinery and equipment as well as those in the construction materials businesses have been and will continue to be the principal providers of gateway cargoes to the WIT Port.

Due to the inherent water-depth limitations along the upstream regions of the Yangtze River, large ships are precluded from navigating directly between those areas and Shanghai. The trans-shipment service provided by the WIT Port offers a more economical alternative to ship container cargoes using large ships carrying more containers to and from Shanghai and overseas. Surrounding areas which are serviced by the WIT Port include Hunan, Guizhou, Chongqing, Sichuan, Shanxi, Henan, Hubei and Shaanxi Provinces. Strategic initiatives by the government for shipping companies and the WIT Port promotes direct shipment to the Yangshan Port in Shanghai (江海直達) have further strengthened the position of the WIT Port as a trans-shipment port at the mid-stream of the Yangtze River.

The Group has also developed port related services including agency and integrated logistics service businesses to expand its revenue sources, including bonded warehousing, customs clearance, break bulk and distribution at the WIT Port.

The Multi-Purpose Port, which is located adjacent to the WIT Port, extends the container handling capacity of the Group to beyond that of the WIT Port and supplements the terminal service business operation of the Group alongside the WIT Port. Given the close proximity between the WIT Port and the Multi-Purpose Port, they are jointly operated and managed by Wuhan International Container Company Limited (“WIT”).

During the first half of 2019, as a result of the lifting of the requirement of the customs department to designate a domestic trade zone for the handling and storage of domestic trade containers and cargos so as to segregate them from foreign trade containers and cargos at the Yangluo Port, the barrier of the domestic trade zone in Phase one of Yangluo Port area was removed. Since then, Phase one of Yangluo Port area has been allowed to integrate operations and management of both domestic and foreign trade containers and cargos. This has brought about major changes to the terminals in the Yangluo Port resulting in significant improvement in capacity, efficiency and service quality of the port and greatly increased usable area of the stacking yard at the port. With additional usable area and improved efficiency and for the purpose of generating steady and regular income, the Group decided and subsequently commenced leasing certain part of the stacking yard and warehouses at the WIT Port to independent third parties for leasing income during the year ended 31 December 2019. As a result of this, the usage of the stacking yard and certain warehouses designated for leasing has been changed from owner occupied to for leasing purpose, and accordingly, these assets have been transferred from property, plant and equipment, construction in progress and land use rights to investment properties during the year ended 31 December 2019.

Furthermore, the terminals in Phase one of Yangluo Port area launched the first direct international container shipping route from Wuhan to Japan in the fourth quarter of 2019, a milestone of significance as the first international container shipping route in the middle and upper reaches of the Yangtze River.

In addition, the cooperation with Wuhan Jingkai Port Company Limited*(武漢經開港口有限公司) has further expanded the container handling service of the WIT Port, thereby creating synergies and promoting the business development of the Group.

 

The Hannan Port

The Hannan Port is located along the Yangtze River in Wuhan, adjacent to the Shanghai-Chengdu, Beijing Zhuhai Expressway and within 80 kilometers of the Beijing-Guangzhou Beijing-Kowloon rail link.

Wuhan, the provincial capital of Hubei, is an important transport hub in the PRC. In terms of riverway traffic, Wuhan is linked through the Yangtze River with six provinces (namely Jiangsu, Anhui, Hubei, Sichuan, Jiangxi and Hunan) and Shanghai. Given the important role of Wuhan in the development of the Yangtze River Economic Belt, the Directors consider that it is in the interests of the Group to make further investments in its port businesses in the Wuhan area.

In recent years, the Group has been facing competition from its neighbouring port operator capturing marketing shares from the Group through the deployment of tariff cutting tactics to induce customers to use its port. To capture the future economic growth in Wuhan and to better position itself against the competition from neighbouring ports, Hannan Port Group provides an opportunity for the Group to expand its geographical coverage beyond the Yangluo Port Area where the WIT Port and the Multi-Purpose Port in Wuhan are located. The Hannan Port Group creates synergies between the WIT Port and the Hannan Port, particularly because the management team of the WIT Port has extensive experience in the construction, development and management of ports in the PRC. Being the feeder port of the WIT Port, the Hannan Port can increase the throughput capacity of the WIT Port to satisfy the demand for logistics services in Wuhan. The WIT Port, together with the Hannan Port, can provide more cost-effective solutions to the Group’s customers. As the Hannan Port will be developed into a multi-purpose service platform in phases, providing terminal, warehousing and logistics services and other services including RORO (Roll on Roll off), bulk cargo transportation and storage, automobile spare parts processing and logistics services.

Phase I of the Hannan Port has been completed. Phase II, which will be developed as a multi-purpose port, is in the course of pre-construction work.

 

The Shayang Port

The Shayang Port, one of the major port construction projects under the “12th Five-Year Plan” of Hubei Province, the PRC which serves as a logistics centre and water transportation hub connecting the surrounding six provinces, is an essential material distribution centre of Central Wuhan and also a superior port area for the middle reaches of the Han River. The investment was made as part of the Group’s strategy to establish a synergistic connection between the Shayang Port and the WIT Port in the Yangtze River Basin. This serves to maximise the WIT Port’s advantage as a logistics centre of the Yangtze River, in line with the development trend of “The Belt and Road” policy in the PRC, and is beneficial to the Group implementing its strategic aims in the Yangtze River Basin.

The Shayang Port is planned to have six berths. The port has commenced commercial operation in 2018. The testing of equipment for the sixth berth has been completed and became operational in the first half of 2019. Currently, the Group has obtained the port operating licence of 4 berths. The stacking yard and other facilities adjacent to the port is under construction and is expected to be completed by the end of 2020.

The Hanjiang logistics centre comprises 7 blocks of warehouses and an ancillary office building and it is intended to be held as investment property for generating rental income. The logistics centre is under construction by independent contractors. It is expected that the logistics centre will commence operation by the end of 2020.

 

The Shipai Port

The Shipai Port is located in Shipai County, Zhongxiang City, Hubei Province, the PRC and intended to be developed into a port, logistics and industrial mixed-use port district with an area of approximately 25 square kilometers. The port portion of the Shipai Port will occupy an area of approximately 2.5 square kilometers with four (4) 1,000-tonne class berths, and a logistics park covering approximately 2.5 square kilometers to be constructed next to the port area. The investment in the Shipai Port provides an opportunity for the Group to expand its geographical coverage and create synergy among its ports.

The port commenced commercial operations in 2018. The inspection and acceptance of the construction of the temporary stacking yard was completed by the end of 2019.

 

Zhongji Tongshang Construction

Zhongji Tongshang Construction is principally engaged in undertaking construction projects. Zhongji Tongshang Construction acts as the platform for the Group to diversify its business and explore new business opportunities in the construction industries. Zhongji Tongshang Construction has been negotiating for the role of the main contractor in municipal construction projects in Hubei Province. As a main contractor in construction project, Zhongji Tongshang Construction will be expected to act as the entity in charge of the entire project, and will be responsible for completion or outsourcing of the construction works and supervision of the project to ensure that it will be completed on time and within budget, and ensuring that the construction work will meet all relevant regulations and quality standards. 

The Group commenced its construction business through Zhongji Tongshang Construction since December 2019, as a main contractor for the provision of construction services for various construction works, including residential structures, commercial structures and performance stages.

 

Tongshang Supply Chain

Leveraging the Group’s extensive experience in the operation and management of various ports and terminals located within the Yangtze River Basin in Hubei Province, coupled with its solid customer and supplier network cultivated during its many years of business operation, Tongshang Supply Chain Management (Wuhan) Co., Ltd.*(通商供應鏈管理(武漢)有限公司) (“Tongshang Supply Chain”) serves as the principal supply chain service provider and trader for up-stream suppliers and down-stream customers through the supply chain management and trading business of the Group. The development of supply chain management and trading business will enable the Group to establish deeper connections with both supply and demand sides of the supply chain, engage in various businesses such as trading, logistics, storage and delivery, and enhance efficiency of integrated services. At the same time, it will enable the Group to consolidate and optimise flows of commodities, capital and information for the supply chain, which will facilitate trading enterprises to enhance intelligent trading, reduce costs and strengthen competitiveness.

 

Operating results

 

Revenue

  Year ended 31 December  

 

2019

2018

Increase

 

HK$’000

%

HK$’000

%

HK$’000

%

 

 

 

 

 

 

 

Terminal service

101,981

29.0

99,008

37.7

2,973

3.0

Integrated logistics service

62,670

17.8

83,665

31.9

(20,995)

(25.1)

Property business

8,617

2.4

34,538

13.2

(25,921)

(75.1)

Container handling, storage
& other service

25,129

7.1

17,633

6.7

7,496

42.5

General and bulk cargoes handling
service

7,232

2.1

3,659

1.4

3,573

97.6

Supply chain management and
trading business

19,922

5.7

24,002

9.1

(4,080)

(17.0)

Construction services

126,470

35.9

-

-

126,470

N/A

 

352,021

100.0

262,505

100.0

89,516

34.1


For the year ended 31 December 2019, the Group’s revenue amounted to HK$352.02 million (2018: HK$262.51 million), representing an increase of 34.1% as compared to 2018. The increase was mainly due to the offsetting effect of (i) the revenue of HK$126.47 million brought in by the newly commenced construction business; (ii) the increase in revenue of HK$7.50 million from container handling, storage & other service and the increase of HK$2.97 million from the terminal service business as the increase in the container throughput was partly offset by the lowering of overall tariff rates to align with those charged by neighbouring competing ports; (iii) the decrease in integrated logistics service income of HK$21.0 million as service coverage reduced from integrated to only certain sections of the service chain; (iv) the decrease in port and warehouse leasing income of HK$25.92 million in the property business of the Hannan Port (漢南港)upon expiry of the lease; and (v) the decrease in revenue of HK$4.08 million from the supply chain management and the trading business due to the slowdown of the automobile sales in the country during the year.

 

Terminal services

Container throughput

  Year ended 31 December  

 

2019

2018

Increase

 

TEUs

%

TEUs

%

TEUs

%

 

 

 

 

 

 

 

Gateway cargoes

349,231

57.1

323,477

54.5

25,754

8.0

Trans-shipment cargoes

262,797

42.9

269,532

45.5

(6,735)

(2.5)

 

612,028

100.0

593,009

100.0

19,019

3.2


Total throughput achieved by WIT for the year ended 31 December 2019 was 612,028 TEUs, representing an increase of 19,019 TEUs or approximately 3.2% as compared to that of 593,009 TEUs for the year ended 31 December 2018. Of the 612,028 TEUs handled in 2019, 349,231 TEUs (2018: 323,477 TEUs) or approximately 57.1% (2018: 54.5%) and 262,797 TEUs (2018: 269,532 TEUs) or approximately 42.9% (2018: 45.5%) were attributed to gateway cargoes, and trans-shipment cargoes respectively. The gateway cargoes throughput increased by approximately 8.0% to 349,231 TEUs (2018: 323,477 TEUs) and the trans-shipment cargoes throughput decreased by approximately 2.5% to 262,797 TEUs (2018: 269,532 TEUs).

The increase in overall container throughput for the year ended 31 December 2019 was attributable to offsetting effect of an approximately 8.0% increase in gateway cargoes and an approximately 2.5% decrease in trans-shipment cargoes. The Group has taken initiatives to raise the level of business at the WIT Port from existing customers through the enhancement of quality of services and drive to develop new import (inbound) businesses. As a result, both the gateway cargoes for foreign and domestic import increased by an approximately 10.8% and 2.8% to 232,567 TEUs and 116,664 TEUs (2018: 209,966 TEUs and 113,511 TEUs), respectively. However, throughput of the major trans-shipment routes, namely the Yichang/Jingzhou routes, decreased by an approximately 8.7% to 46,548 TEUs (2018: 50,978 TEUs) as compared to 2018.

 

Market share

In terms of market share, for the year ended 31 December 2019, WIT’s market share decreased to approximately 38.0% (2018: 40.7%) based on a total of 1,612,687 TEUs (2018: 1,457,236 TEUs) handled for the whole of Wuhan in 2019. The decrease in market share was mainly attributable to the competition arising from neighbouring competing ports during the year ended 31 December 2019.

 

Average tariff

Tariffs denominated in Renminbi (“RMB”) were converted into Hong Kong Dollars, being the reporting currency of the Group. The average tariff for gateway cargoes for the year ended 31 December 2019 was RMB216 (equivalent to approximately HK$238) per TEU (2018: RMB218 (equivalent to approximately HK$260) per TEU), representing a decrease of approximately 0.9% as compared to that of year ended 31 December 2018. The average tariff for trans-shipment cargoes was RMB40 (equivalent to approximately HK$44) per TEU (2018: RMB46 (equivalent to approximately HK$55) per TEU), which decreased by approximately 13.0% as compared to that of 2018.

 

 

 

 

 

Integrated logistics service

The integrated logistics service business of the Group provides agency and logistics services, including provision of freight forwarding, customs clearance, transportation of containers and logistics management. Revenue generated from the integrated logistics service business for the year ended 31 December 2019 decreased by HK$21.0 million to HK$62.67 million (2018: HK$83.67 million), which accounted for approximately 17.8% of the Group’s total revenue for the year ended 31 December 2019 (2018: 31.9%).

The decrease was mainly attributable to integrated logistics service coverage being reduced from integrated to only certain sections of the service chain during the year ended 31 December 2019.

 

Property business

Income for the property business is mainly generated from the port and warehouse leasing business of the Hannan Port, Wuhan which owns investment properties of leasehold lands, berth, commercial buildings and pontoon, as well as the leasing of a stacking yard and certain warehouses at the WIT Port during the year ended 31 December 2019. The port and warehouse leasing income for property business decreased to HK$8.62 million (2018: HK$34.54 million) which accounted for approximately 2.4% of the Group’s total revenue for the year ended 31 December 2019 (2018: 13.2%).

The decrease was mainly due to the expiry of a lease in warehouse and workshop area available for lease in Zall Eco-Industry City*(卓爾生態工業城), Phase 1 of the Hannan Port.

 

Construction Business

The Group commenced its construction business through Zhongji Tongshang Construction since December 2019, acting as main contractor for the provision of construction services for the projects of (i) the residential structures and commercial structures and a performance stage at Northwest of Bayuanhe Bridge, Provincial Highway S309, Shengli Town, Luotian County, Huanggang City, Hubei Province, the PRC*(中國湖北省黃岡市羅田縣勝利鎮S309省道巴源河大橋西北); and (ii) the major and secondary structural construction, earthworks, drainage installation works and other ancillary works for residential and commercial buildings (both 3-storey or below) at Yangdian Town, Xiaogan City, Hubei Province, the PRC*(中國湖北省 孝感市楊店鎮). The construction income amounted to HK$126.47 million and accounted for approximately 35.9% of the Group’s total revenue for the year ended 31 December 2019.

 

Gross profit and gross profit margin

For the year ended 31 December 2019, gross profit decreased by 20.1% to HK$104.56 million (2018: HK$130.88 million) and gross profit margin was 29.7%, decreased by 20.2 percentage point as compared to 2018 (2018: 49.9%).

The decrease was mainly due to the offsetting effect of (i) the decrease in port and warehouse leasing income from property business of the Hannan Port(漢南港) with relatively higher gross profit margins; and (ii) the commencement of the construction business since December 2019 with relatively lower gross profit margins.

 

 

Other income

Other income for the year ended 31 December 2019 dropped by approximately 45.0% to HK$18.10 million (2018: HK$32.89 million). The decrease was mainly attributable to the net effect of (i) the decrease in the government subsidies of HK$14.90 million as the government subsidies for the Shayang Port and the Shipai Port of HK$5.95 million and HK$11.90 million, respectively, for the year ended 31 December 2018, were not repeated during the year ended 31 December 2019; and (ii) the additional government subsidies of HK$6.78 million granted to support the development of the logistics centre adjacent to the Shayang Port.