In the bay of Kompong Som of the Cambodian coast facing the Gulf of Thailand, sits state-owned Sihanoukville Autonomous Port (PAS), biding its time for year-on-year top and bottom line container throughput growth, and diversification plans to stave off external headwinds.
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The port, which handles 70 percent of Cambodia’s import and export market via three gateways including Vietnam’s Cai Mep Port, is on track for a double-digit revenue growth for the financial year ending December 31, 2018 (FY18), said its chairman and chief executive officer Lou Kim Chhun.
In the 10-month period this year, container throughput rose 18.04 percent year-on-year to 446,520 TEUs (20-foot equivalent units) from 378,292 TEUs, pushing revenue up 20.65 percent as at Oct 31. Container throughput has been on a five-year upward trend at a compound annual growth rate of 9.93 percent from 2013 with 11 shipping lines as partners to transport containers in Asean and East Asia.
Tackling high ocean freight rates
In FY17, its net profit dipped 5.92 percent to $6.24 million from $6.63 million a year ago due to foreign exchange losses incurred from Japanese borrowings although annual revenue went up 8.81 percent to $56.42 million from $51.85 million in FY16.
For the first financial half ended June 30, 2018 (1HFY18), the port returned to the black with $2.31 million in net profit after posting $568,516 net loss in the corresponding period last year.
Half-yearly revenue expanded 24.21 percent to $32.09 million from $25.84 million in 1HFY17.
In an interview with Khmer Times, Mr Chhun said the expansion of its container terminal, staged into three phases under its medium-term development plan (2017-2030), is key to boosting growth by bringing down ocean freight rates.
It is also studying the feasibility of a freeport status for its 70-hectare Sihanoukville Port Special Economic Zone to attract investors, building up its cruise terminal, which has seen a 14 percent rise in passenger arrivals from January to October this year, and introducing transshipment services to diversify its revenue stream.
The moves are pertinent to quell the negative impacts from escalating US-China trade war tensions, container liner consolidations, and Chinese interest in building ports in Sihanoukville and Kampot, although Mr Chhun downplays the effect.
He maintains that good ocean freight rates following the port’s expansion, and continued Chinese investment via property development in Cambodia (as construction materials are imported from China) would minimise the impact from external challenges.
Starting next year, Phase One of the project, involving the construction of 350 metre-long terminal, and access channel dredging to 14.5 metres, would raise PAS’ container-handling figure to 1.29 million TEUs by 2023 from the existing capacity of 700,000 TEUs.
The Japanese government through the Japan International Cooperation Agency (JICA) has granted a $205 million soft loan for the project. As of June 30, Japanese borrowings, made up mostly of loans from Japan Bank of International Cooperation, inched up 4.56 percent to $135.87 million from $129.94 million a year ago.
“At present, we can handle up to 700,000 TEUs but we expect an increased (capacity) of 500,000 TEUs to 600,000 TEUs a year from 2023 onwards. We believe we can handle more than that. Normally, most quay cranes are on standby but our port reaches more than 70% operation with an average of 25 to 26 crane moves per hour. We want to sweat our assets,” he said.
He reckons that with the completion of the first phase, up to $100 in trucking costs to Phnom Penh can be reduced apart from $200 cost savings per container, similar to its sister port in Phnom Penh.
Citing a study on the existing terminal JICA, he said only 18 percent of container ships in the region are currently able to call at its port.
This translates to smaller ships and fewer cargos, which makes ocean freight expensive but a deeper channel would attract 93% of the ships in the region, instantaneously reducing the rates.
“Logistic costs includes ocean and land costs. For example, trucking cost for a 20-foot container from Sihanoukville to Phnom Penh is $170 to $180 per container. Ocean freight from China is $500 per container. Although we are closer to Shanghai Port compared to Thailand’s Laem Chabang, the latter’s rates are cheaper than ours because Laem Chabang is a larger deep sea port, so it benefits from economies of scale. So trucking cost to Cambodia is lower,” Mr Chhun said.
But he notes that once the terminal is completed in 2023, ocean freight rates would be similar to Laem Chabang.
“If we have similar rates, it is already a win for us,” he said.
Record-high share price
PAS, Cambodia Stock Exchange (CSX)’s largest listed company and its sister port Phnom Penh Autonomous Port are public enterprises of the Ministry of Economy and Finance (MoEF), which owns 75% equity, and Public Works and Transport Ministry, while JICA possesses 13.5 percent stake.
Since its listing on June 8, 2017, the counter’s share price has gained more than 30 percent from its initial public offering price of 5,040 riel. On Nov 8 it closed at a record 6740 riel, giving it a market capitalisation of $142.89 million (578.10 billion riel) after hitting an all-time intraday high of 6,800 riel.
Mr Chhun believes the share price would improve in 2019 as dividend is expected to be higher than eight percent paid in FY17. It has a dividend policy of five percent.
In June this year, it opened its $74 million multi-purpose terminal catering to break bulk cargo and general cargo, to handle the export of agricultural products and import of coal and construction materials.
The 330m terminal allows for 50,000-tonne cargo vessels to dock with an oil supply base yard, dry bulk cargo, and coal storage yards.
A case of two economic zones
The history of the port dates back to 1958 but the present is probably the most important milestone as it embarks on expansion, seeing that the once-sleepy coastal province has awoken to robust real estate development.
This is a boon for the port as it also rakes in income from the import of sand for construction via barges from sandmines in Koh Kong, and Phnom Penh.
But while Chinese investments swirl around Sihanoukville like the unsettling dust, the investors in the province have also gone ahead with their own special economic zone – the Sihanoukville SEZ which has more than 100 companies established there.
However, the port also has its SEZ which is suitably located next to the sea but with just three companies it is struggling to attract more players due to high land cost.
“One of the reasons the Chinese SEZ managed to attract more companies is because its land prices are lower – between $20 and $22 per square metre as it is 20km away from the town. Our land costs $65 psm. This is due to escalating land prices in Sihanoukville, which has risen to more than $3,000 psm in some parts,” he said.
‘What about the red flag on the beach?’
A few months ago, Tianjin-based Union Development Group Co Ltd showed interest in building a deepsea port in Sihanoukville, as part of China’s state-owned Guangxi Beibu Gulf International Port Group’s collaboration with local timber tycoon Try Pheap’s company to set up a port in nearby Kampot province.
Unfazed, Mr Chhun asserts his port still has the best location whose service would complement other port services including Cai Mep Port, and with expansion plans underway, PAS is set to become competitive.