Cosco

Cosco: Poor set of results as 1H13 sales -17% yoy to $1.6b , while net profit fell 61% y/y to $21.8m. The weak results was partly due to declines in other income, where currency exchange swung from a profit of $13.8m in 1H12 to a loss of $14.5m in 1H13, and scrap material sales declined 43% y/y to $20.8m. 2Q13 gross margin at 10.8% was stable vs 1Q13 Management remains cautious on the outlook, with the expected loss on construction contracts in 2Q13 demonstrating the challenges in offshore engineering. While management remains cautious on the outlook, its YTD offshore wins at US$1.1b appears healthy, with a total order book of US$6.7b with earnings visibility till 2015. Overall, the challenges in Chinese shipbuilding remains, and while YTD global vessel new order growth figures appear healthy, they have come from a small base in 2012 and the order quality remains poor. According to Reuter’s article, financing conditions to Chinese shipbuilders appear to have tightened as the government tries to cut excess capacity in the sector. Some banks have started asking for more prudent ship construction contracts before they grant loans (at least 15% down payments) and have withdrawn loan approval rights given previously to branches. Separately, Cosco has announced a US$170m contract to build a jackup rig for a European Company. CIMB maintains U/p with $0.46 TP CS maintains U/p with $0.60 TP Deutsche maintains Hold with $0.83 TP