Cosco

Cosco: 3Q13 results remain disappointing as net profit fell 84% to $4.2m although revenue edged up 6% to $989.4m with the increase mainly contributed by turnover in shipyard operations (98.6% of revenue) where growth in marine engineering segment more than offset the lower revenue from ship building and ship repair segments. Dry bulk shipping and other businesses remained relatively unchanged y/y and contribute 1.4% of revenue. 3Q13 gross margins sank to 7.4% (2Q13:10.8%, 3Q12:12.3%) with a $15.8m in inventory writedown and a $33.9m provision for losses. This in turn, was the main factor of the significantly reduced bottom line. Group’s order book as at Sep was US$7.2b with progressive deliveries up to 2015. 16 bulk carriers were successfully delivered for 9M13. MBKE notes that despite the good orderbook, Cosco has yet to demonstrate improvements in execution as margins continue decline. Cosco has guided for continued pressure on margins, citing wages and raw material price increases, competition, higher financing costs and CNY strengthening as negative factors. Deutsche Bank prefers YZJ over COSCO due to execution risk. YZJ’s new orders YTD have surged and stand at US$2.1b, appearing to be on track to reach their FY13 estimate of US$2.5b and It has 28 outstanding options worth US$1.36b entered with customers Latest broker ratings as follows: MBKE: Maintains Sell, TP: $0.65 Credit Suisse: Maintains Neutral, TP: $0.80 OCBC: Maintains Sell, TP: $0.60 Deutsche: Maintains Hold, TP: $0.75