Cosco

Cosco: Annouced poor set of 3Q11 results which as below estimates. Rev at $969.8m, +1.8% yoy and -2.6% qoq, while Net profit at $31.5m, -42.9% yoy and -54% qoq. Ebitda margins crumbled to 11.4% vs 15.2% yoy and 16.4% qoq. Result places 9M11 net profit forms at a mere 58% of consensus FY11 forecasts,that too achieved with the help of a $19m forex gain.

Grp’s offshore division was barely profitable in 3Q11 with gross margins of less than 5%, and a $47m provision was made for losses in 3Q11 ($28.3m in 1H11), to account for cost overruns, learning curve and penalties from project delays. Mgt expects further provisions if the mkt remains competitive with Cosco bidding aggressively for unprofitable projects, analysts note that margins for shipbuilding could succumb to pressure from rising labour costs and Rmb
Appreciation,

Order outlook remains foggy, with YTD new orders at US$1.9b (US$1.8bn from offshore), mostly secured in 1H11. Current order backlog stands at US$6.4b, with deliveries into 1H14. Rig orders now account for 55% of backlog, while ships contribute 45%, with the remainder arising from fpso conversion jobs. Mgt was however unable to provide clarity on its order outlook except for two pipelay contracts (US$230m) from SapuraCrest, which could be made effective soon.

Ratings are as per follow:
Citi maintain Sell with $0.82 TP: Reiterate view that COS’s diverse offshore product mix continually presents fresh execution challenges to the group in the foreseeable future. Recurring provisions necessary to scale learning curve is likely to result in earnings volatility in coming qtrs.

CIMB Maintains U/p with $0.92 TP. still based on 1.5x P/B. Note that execution is still its main risk.

Nomura has Reduce Call, TP $0.69, 3Q11 continues to disappoint.

Deutsche maintain Hold, TP $1.10, challenging propspects, valuations appear fair.

CS maintain U/p, $TP 0.60 from $0.70, outlook remains bleak, reduce 2011-13E EPS by 17-19% on lower margin forecasts.