Beijing-based freight-forwarder Sinotrans said it plans to invest 20 million yuan (US$2.3 million) in a new joint venture to toughen its leading position in the mainland market.

The announcement came after the company posted strong first-half results yesterday, with its net profit for the six months to June climbing 18 per cent year-on-year.

"We are now in close contact with Japanese company Hankyu Corp to form a 50-50 joint venture to tap the cargo delivery agency and logistics business," said Sinotrans Chairman Zhang Bin. "The registered capital of the joint venture will be 40 million yuan (US$4.8 million)."

Hankyu Corp is a Japanese railway operator listed on the Tokyo stock exchange.

Benefiting from China's booming trade, Sinotrans posted a nearly 30 per cent increase in its first-half revenue to about 7.7 billion yuan (US$927.8 million), with high turnover surge in its core business activities including freight forwarding, express services and shipping-agency services.

Its net profit amounted to 345.6 million yuan (US$41.6 million) for the period, compared with 294 million yuan (US$35.4 million) a year ago.

The freight-forwarding business, which contributed nearly 70 per cent to the total turnover, recorded 20 per cent growth due to increasing sea container and air-freight forwarding services and a rise in freight rates.

However, profits from the sector constituted no more than 30 per cent of the company's operating profit because of low operating margin, which stood at 3.26 per cent in the first half.

Its high-margin express parcel service business, which, made up just 9.2 per cent of turnover, contributed 34.7 per cent of profit.

Turnover in the sector grew 40 per cent to 732.9 million yuan (US$88.5 million).

After forging partnerships with world courier giants DHL Worldwide Express and United Parcel Services (UPS), Sinotrans said it has about 60 per cent market share in the express parcel business.

"Expansion in the market share and growth in China's economy have provided further upward momentum for the express service business," said Zhang Jianwei, president and executive director of Sinotrans.

Although market watchers warned that the government-backed company may face stiff competition as China has further liberalized the sector, the company said it could comfortably achieve the same fast growth in the second half.

"The company's overall competitive strengths have been greatly enhanced after business consolidation, restructuring and implementation of new innovations to the management systems. We remain confident in the company's performance for the entire 2003 financial year," said chairman Zhang.

The company also said it planned to make acquisitions in the second half, possibly from its State-owned parent. "We have no details at the moment, but we hope any investment would require a return on equity of 11 or 12 per cent," said Zhang.

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