Cosco

Cosco: OCBC downgrades to Sell with TP $0.84. Says it fears a similar deterioration of Cosco’s orderbook, following Yangzijiang’s first reported order cancellations a few wks back. Notes the Baltic Dry Index is at a 25 yr low, and Cosco’s orderbook of 47 bulk carriers may be at risk should the operating conditions worsen. Adds many of Cosco’s customers are based in Europe and may rely on Eurozone banks for financing, making Cosco more vulnerable to macro risks. Highlights high concentration risk arising from Sevan Drilling’s order of two rigs worth ~US$1b, particularly with Sevan said to have changed payment terms to a more back ended schedule (balance 90% on delivery in 2Q12, vs 80% previously).