Cosco Corp

Cosco Corp: CLSA reiterate SELL with $0.45 TP, implying 38% downside from current levels. While Cosco has been able to secure large offshore orders in FY13 and now sits on a gross order book of over US$8b, a combination of low pricing and poor execution will lead to sharp margin declines which implies that profitability is likely to disappoint street estimates. Cosco has faced cost and time overruns on multiple projects results in large provisions. CLSA remain sceptical about the company’s ability to drive a margin rebound as diversified product mix will limit learning curve gains and thus cut our gross margin assumptions to 9.1% for FY13 and 10.1% for FY14. Further, the stock is trading at an expensive 35x FY14 PER. House prefer Singapore yards for offshore exposure and Yangzijiang for Chinese shipbuilding.