Tuesday, November 4, 2014
Cosco
Cosco: 3Q14 net profit missed street and Maybank-KE’s estimates, although it increased 69.2% y/y (-50% q/q) to $7.1m.
Top line grew 17.1% to $1.16b. Shipyard operations revenue grew 17.2% to $1.1b on growth in marine engineering segment, partially offset by ship building & ship repair segments. Turnover from dry bulk shipping and other businesses grew 11.2% to $14.9m on higher short-term charter rates.
Gross margin fell 2.6ppt to 4.9% on lower contribution of shipyard contribution.
While Cosco benefitted from currency exchange gains of $5.1m, this was offset by an allowance for receivables and inventory writedown of $3.2m
Orderbook stood at US$8.9b with progressive deliveries to 2016. While this appears in line, expect operating margins on these new shipbuilding contracts to be under pressure as these were contracted at low values. This is besides rising labor, raw material and interest costs. The wide product range under construction also presents execution risks.
Aside, problems have surfaced on three contracts worth US$1.3b:
1) Octabuoy semi-sub hull and topside build for ATP UK is up for sale due to default by the client. Cosco has rights to retain instalments paid by ATP UK, and complete, and sell the Octabuoy Project.
2) A DP3 deepwater drillship was being terminated by client on grounds of delay. The first instalment of US$110m together with US$8.1m interest has been refunded, notwithstanding current arbitration proceedings
3) Delivery for drillship built for Sevan Drilling was further deferred from 2Q14 to 4Q14 on mutual agreements. We understood among options Sevan is mulling include the possibility of contract cancellation, in which Sevan may recoup US$105m of paid instalments
Cosco would not disclose the amount of uncollected payments, but acknowledges possibility for provisions to be booked if these cannot sold to covered incurred cost or booked profits.
Underlining Cosco’s poor performance and grey skies is its poor health, having a high net gearing of 1.2x and negative 3Q14 operating cashflow of $0.2m.
Cosco is trading at 1x P/B.
Latest broker ratings:
Deutsche maintains Hold with TP of $0.65
Maybank-KE maintains Sell with TP of $0.54
Daiwa maintains Sell with TP shaved to $0.50 from $0.56
JP Morgan maintains Underweight with TP of $0.45
OCBC maintains Sell with lower TP of $0.50 from $0.60
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment