Cosco

Cosco: Daiwa initiates at Underperform with a $1.00 target price, citing its premium to its peers over the past 3 years is no longer justified, due to: its exposure to bulk shipping & the operating profit margin contraction trend. Expects Cosco's share price to de-rate from its above-average & higher-than-peers' P/E. Notes the shipbuilder's operating profit margin has been falling since it started on new offshore rigbuilding projects; which was confirmed in the 2Q11 results. Adds Cosco's exposure to bulk shipping is negative given the current oversupply of ships & weak demand due to the global economic slowdown. Notwithstanding the 70% fall in the share price since the group announced worse-than-expected 2Q11 results on Aug 1, house expects further share price downside from further negative margin surprises. Prefers KepCorp, rated Outperform, for its better operational efficiency, earnings outlook & attractive valuations.