Cosco

Cosco: Cosco announced three contracts worth a total of about US$400m, with one cancellation of an order worth more than US$500m. The contracts it won are 1) the US$170m conversion of a semi-completed hull to a high-end floating accommodation unit due for delivery in 2015; 2) a US$180m jack-up rig from an Asian owner for delivery in 3Q15; and 3) Rmb325m (US$53m) for a 30,000dwt cargo & training ship. The cancelled contract is a drillship awarded in Jul 2010 to convert the hull of a vessel originally built as part of a floating production drilling storage and offloading (FDPSO) unit for MPF Corp, which sought protection from bankruptcy in 2008. The drillship owner served Cosco Dalian a notice on 5 Aug 2013 to terminate the contract on the grounds of delay in the vessel’s delivery, although the construction is mostly complete. On 5 Sep, the owner claimed a refund for the first instalment (US$110m) and other advances paid. Cosco's without prejudice proposal to settle the matter was rejected on 7 Oct. Several potential buyers have expressed interest in buying the vessel. Overall, CIMB note that YTD order wins has reached US$2.5bn. According to Riglogix, Odjfell is the drillshp’s owner and the vessel’s status is “under inspection”. Cosco could sell the vessel for US$500m (vs. about US$600m built in Korea), but the sale may prove to be a loss as it could cost Cosco more than US$500m to complete the vessel. More modifications may be required to suit the new owner's requirements. Arbitration is likely to take long to reach a settlement and expect any provision made in this regard to wipe out its FY13 or FY14 profits. CIMB maintains U/p with $0.46 TP, citing that there is no reason to own this stock.