Cosco

Cosco: Citi maintains Buy with $2.55 TP. Note that according to the China Securities Journal, SASAC will push forward the complete listing of 16 centrally-administered SOEs in 2011. During this process, house believes the restructuring will involve entities within the Cosco Group and is likely to result in the various business units being streamlined further…

Believe that Cosco could acquire a 19% stake in the Cosco Shipyard (raising stake to 70%; SMM owns remaining 30%) and full ownership of COSCO Shipbuilding Industry Company (a mid-size top-tier yard specializing in large containerships and VLCCS) Estimated additional profit base could amount to 30-40% of Cosco FY11E Net Profit forecast of $257m….

Restructuring may potentially conclude with Cosco Group transferring its 54%
majority stake in Cosco Corp (SG) to China Cosco, significantly boosting China
Cosco’s growth prospects….

Despite the rise in the share price, remain positive on Cosco Corp as it is one of the few yards that can deliver strong EPS growth amid industry downturn and reiterate that investors may have underestimated margin recovery in the ship building segment.