Cosco Corp

Cosco Corp: Latest news flow was yesterday, when sister company China Cosco Holdings (1919 HK) is reportedly considering to purchase dozens of orders for new cargo ships in 1H14, in what could be the group’s first major purchase over the last five years. This comes after the Chinese government announced new cash subsidies for vessel scrapping of old cargo ships and tankers, giving an impetus for shipping companies to upgrade their aging fleet. According to industry sources, China Cosco is already in talks with several shipyards in regards to the new builds. We note that the news could be positive for its sister company, SGX-listed Cosco Corp, which specializes in the construction of container and bulk carriers, and some of these potential orders could be contracted from Cosco Corp. Cosco Corp’s current order book now stands at ~ US$7.7-7.9b, with progressive deliveries up to 2015/16 but this could have been won at the expense of margins. The group delivered another set of miserable results in 3Q13, with net profit diving 84% y/y to $4.2m despite achieving higher revenue of $989.4m (+6%). In view of its poor execution, the stock is generally unloved by the street. Analysts generally prefer larger peer Yangzijiang, which has not only enjoyed strong order win momentum year-to-date, but also better profitability. Cosco trades at a hefty 34x forward P/E, compared to Yangzijiang’s 7.2x. Overall, the street has 4 Holds and 9 Sell ratings and a consensus TP of $0.65 on Cosco.