Cosco announced that it has received deposits for two more 82,000dwt bulk carriers as part of the US$440m order for 15 ships announced mid-June. This brings the total number of confirmed contracts to four. Recent conversation with mgmt also indicates that its problems with execution on the shipyard business are close to being worked through. With 18 vessels delivered YTD and build times for new vessels improving, we believe that there is scope for its shipbuilding margin to expand further.
On the other hand, its bulk shipping business is likely to be impacted by the unabated decline in rates. The BDI has notably fallen by 37% over the past month, as economic concerns impact the outlook for hard commodity imports into China, particularly iron ore and coal. KE has a Hold recommendation on Cosco with TP of S$1.44, based on mid-cycle P/B valuations of 3.0x.
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