Cosco

Cosco: FY13 results missed. Net profit slumped 71% to $30.6m, while topline slid lower by 6% to $3.5b, mainly due to lower contribution from the ship repair and ship building sources which more than offset marine engineering growth. Gross margin fell from 13% to 9.2% mainly due to higher inventory write-downs, specifically $8m in 4Q13 (FY13: $23.7m), and a $51m provision for losses in the same quarter (FY13: $85.7m). Operating expenses fell 2% to $370m, as distribution cost which fell 19% on less marketing was offset by 10.9% increase in interest expense on higher bank borrowings. Balance sheet wise, total debt decreased by $146m q/q which brought down net gearing from a high of 1.68x in 3Q13 to 1.31x in 4Q13. As at 31 Dec, orderbook stood at US$7.8b with progressive deliveries up to 2016. 1¢ DPS proposed (FY2012: 2¢) Operating conditions remain difficult, and new entrants may pressure margins further. Particularly, CS expects further cash outflow in following quarters s Cosco works on projects with backend-loaded payment terms. Deutsche highlights that potential financial impact on the drillship contract termination arbitration also appears murky. Latest broker ratings as follows: Maybank KE – Maintains Sell with TP cut to $0.65 from ($0.70) CS: Maintains Neutral with TP $0.80 Deutsche: Maintains Hold with TP $0.75