Cosco

Cosco’s 2Q10 sales were up 34% YoY to S$962m while net profit grew 85% yoy to S$68.4m. However, we note that headline profit consisted of some “non-core” items such as forex gains (S$20m; +233% QoQ, +129% YoY), sale of scrap metal (S$27.3m; +114% QoQ, +66%YoY), boosted by one-time deferred profit recognition of a jack-up (S$27m) although partially offset by a S$14.8m provision for two heavy-lift vessels. On a positive note, GPM improved to 12.5%, up from 9.4% in 1Q as a result of improved operational efficiencies in shipbuilding as well as improvement in drybulk shipping rates. YTD, Cosco has booked in new orders amounting to US$1.5bn (ahead of their internal FY10 projections of US$1bn). As at 30 Jun, total orderbook stands at US$5.5bn. We expect Cosco to continue securing a few more contracts for the 2H10. Mgtm has also set a target of securing US$2bn in orders, mainly driven by the offshore sector in FY11.

The stock currently trades at about 21x FY10 and 16x FY11 PER. Citi has a SELL rating (TP: $1.40), Deutsche has a HOLD (TP: $1.77) and KE has a BUY (TP: $2.10)