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Brokers' Take - Cosco Corporation

Brokers' Take - Cosco Corporation

(2010-04-09)

  Cosco Corporation

  April 8 close: $1.40

  DBS VICKERS SECURITIES, April 7

  High enquiry level for offshore projects: The major Singapore yards, namely, Keppel Corp (Keppel), Sembcorp Marine (SMM) and Cosco have bagged $3.2 billion new offshore rigbuilding orders in total year-to-date, which is equivalent to total new orders secured in 2009.

  New orders this year are expected to jump four-fold to $12 billion, back to the 2008 level.

  Indeed, our recent visit to Cosco's Nantong yard reinforces our upbeat view on the offshore industry.

  Cosco Corp has seen strong enquiry levels for offshore projects and is currently in talks for a few new turnkey contracts.

  We are raising our order wins assumption from US$0.5 billion to US$1.5 to US$2 billion for FY2010-2011 in anticipation of a recovery in orders for Cosco. This is low, compared to the US$7 billion worth of new orders secured for both shipbuilding (US$6 billion) and offshore projects (US$1 billion) in 2007.

  We believe the award of Cosco's first turnkey project - Sevan Driller II worth US$500 million last month serves as a harbinger for offshore contract flow.

  Taking into account the potential US$480 million value-add contract for MPF's project, Cosco could bag US$1.5 billion new orders this year with simply one more turnkey project.

  We have revised up FY2010 and FY2011 net profit forecasts by 7 per cent and 32 per cent respectively on higher order wins.

  We have also rolled over our valuation to FY2011, which better reflects the earnings recovery trend of Cosco.

  Our sum-of-the-parts target price is thus lifted to $1.60, pegged at 18 times its ship repair/conversions profits, 16 times its shipbuilding/offshore profits. Upgrade to 'buy'.

  The key risk in our call is a delay in the recovery of its shipbuilding earnings due to execution issues.

  BUY

《Business Times》

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