Cosco

Cosco: Contrary to mkt’s bullish view, CLSA maintains underperform on Cosco with $2.20 TP. Note that although Sevan’s LOI for US$1.1b in rigs cements Cosco’s status as its yard of choice, but Cosco’s almost exclusive reliance on it for semi-sub contracts raises questions on the sustainability of future orders. House sees limited upside potential to short term order wins, given weak bulk shipping outlook and as capacity at Qidong offshore yard reaches its limit…..

House raises order wins by 20%, but lower offshore margins reflecting a turnkey bias, resulting in a 3-5% upgrade to FY11-13 Net Profit. Add that stock appears fairly priced at 16x FY11/12 P/E, in line with the 3yr mean. House is negative on the Chinese shipbuilding space as the cycle is past its interim peak, but prefer Cosco over YZJ on a relative basis due to its offshore exposure and fewer governance.