Cosco

Cosco: OCBC maintains Sell and Cut TP to $0.60. Note that share price has fallen by about 14% since house last such that it is close to our previous $0.76 FV. However, do not think it is time to upgrade our call. The macro environment is looking increasingly gloomy. In China, an unexpected credit squeeze in the Chinese interbank market raised concerns over the fragility of the Chinese banking system. The surprise was that the PBOC took an unusually tough line by refusing to inject liquidity, at least for a few days. Should the credit conditions deteriorate, think that COSCO, with its large debt burden, will be vulnerable. The group’s net gearing climbed to 131% as of end 1Q13, from just 10% as of end FY10. Estimate about half of its existing debt ($3.4b) would need to be refinanced within the next 12 mths. Considering the risks, house cut P/B peg to 1.0x (or 2 std dev below) and FV to $0.60 (previously S$0.76).