Wednesday, June 27, 2012


Cosco: Bloomberg notes Cosco’s strategy of seeking orders to build oil rigs and offshore accommodation units to offset slumping ship demand hasn’t convinced investors. The company, which operates 7 shipyards in China, has dropped 49% in the past year. The shipbuilder has set aside $164m for cost overruns since the beginning of last year, or more than its 2011 annual profit, as building drilling units and oil-rig support vessels takes longer and costs more than expected. The company has also offered lower prices and more generous payment terms than Spore-based market leaders KEP and SMM as orders for dry-bulk ships wane. Cosco recently agreed to build a semi-sub accommodation vessel for Cotemar SA at a price at least 30% cheaper than KEP and SMM charged for larger units. Analysts are skeptical whether Cosco will make a profit from the building contract. Cosco is also increasing its financing costs by letting customers pay for work later. Sevan Drilling pay for 90% of an on-order rig on completion, vs an original agreement for 80%. Shipyards are usually paid in installments as work progresses. Meanwhile, the slowdown in the shipbuilding market has also prompted other Chinese shipbuilders to target the offshore market. China Rongsheng intends to win 40% of its orders from the sector by 2015, vs zero such orders on its books at the end of Dec last year. Yangzijiang aims to win its first order for a jack-up rig this year after the formation of a venture with Qatar Investment Corp. Cosco has the lowest analyst ratings among major Asian stocks, with 21 sell ratings, 2 holds and no buys. Consensus TP is $0.80.

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