Cosco

Cosco: Continues on its recent order wins, as the group joined in the recent spate of Mexican orders for offshore vessels, after announcing that it has secured a US$200m contract to build a harsh-environment semi-submersible accommodation vessel from Mexico-incorporated Cotemar SA de CV. The vessel will be based on the GustoMSC Ocean500 design, and will be designed to operate in the Santos Basin, Gulf of Mexico and the North Sea. The vessel is scheduled for delivery in 24 mths time. This would be the second such vessel Cosco Corporation builds for Cotemar. We note that the latest result brings its YTD contracts to US$1.02b and the grp’s orderbook to US$6.6b. Caution however that this comes amidst a backdrop of Chinese yards slashing tender prices to secure more projects and market share, often resulting in ultra thin profit margins and depressing the bottom-line. Moreover, Cosco's elevated balance sheet with net gearing of 82% is cause for concern, at a time where cash and strong operating cashflow are key for survival in the cut-throat Chinese shipbuilding industry. Reflecting the ground sentiment over the stock, the street has no Buy, 1 Hold and 18 Sell call ratings on Cosco with a consensus TP of $0.69