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HONG KONG - Hong Kong tycoon Li Ka-Shing has sold HK$1.29 billion (US$165.1 million) worth of shares in China Cosco Holdings since the beginning of this month, cutting his stake in the shipping firm to 10.83 per cent from 12.27 per cent.
Mr Li, chairman of Cheung Kong and Hutchison, sold 14.5 million shares at HK$36.20 on Nov 1 and sold another 22.5 million shares at HK$33.90 on Nov 2, the Hong Kong Stock Exchange website showed.
China Cosco is the listed flagship of the country's premier shipping conglomerate. Shares of China Cosco rose 5.3 per cent to HK$31.80 in early Wednesday morning trade. -- REUTERS
JPMorgan - Delivering strong 3Q07 results
? 3Q07 results in line. Cosco reported strong 3Q07 results that were in line with our expectations. Recurring net earnings expanded 87% Y/Y to S$97.7m while recurring 9M07 net earnings grew by 63% Y/Y to S$220m. On a net profit breakdown basis, the share of 9M07 net earnings expanded to 65% (from 55% in 9M06) while earnings from shipping contracted to 35% (from 45% in 9M06). Shipyard net margins also improved to 23.4% in 3Q07 from 21.2% last year while remaining relatively flat sequentially compared to 23.8% net margins in 2Q.
? Low FX risk. Management reiterated that forex risk to earnings is minimal with 65% of the costs being denominated in USD while the remaining exposure is hedged upon signing a contract. On treasury controls, individual subsidiaries are not authorized to enter into FX contracts; only the group treasury (CSG) is authorized to enter into any foreign exchange transactions.
? Progressive capacity expansion. Total docking capacity in Cosco Shipyard Group has increased 28% to 1.73 million dwt from 2006. Management is targeting a total docking capacity of 2.73 million dwt by 2010.
? We are maintaining our SOTP-based December 2008 price target of S$8.40. Key risks to our price target would include cost overruns and project delays on the company?s shipbuilding and offshore contracts.
Merrill Lynch -
Good 3Q07 numbers
Cosco Corporation reported 3Q07 numbers that were largely in line with expectations. Revenue surged 72.1% to S$547mn while net profit increased 36.7% to S$97.7mn.
Strongest quarter to date
Profitability of S$97.7mn represents the strongest quarter for Cosco since its inception. As management highlighted during its results, the group now makes over S$1mn per day as of the 3Q.
Order book continues to rise
Cosco has secured over US$6bn in orders thus far in 2007. Coming from an extremely low base in 2006, the growth of its order book is nothing short of phenomenal.
More room for growth
Cosco is optimistic that it can continue to secure orders as its shipyard capacity continues to expand. The group currently has a capacity of 1.73mn dwt, and this is expected to increase to 2.73mn dwt by the end of 2010, an increase of 58%.
Buy Cosco
We have upgraded our forecasts by 2-3% for 2007-09E to account for the potential for new contracts. Based on our estimates, Cosco will register a net profit CAGR of 51% over the next three years. Consequently, our price objective has been raised to S$10.10. Maintain Buy.
Cosco Corp rose after the Chinese shipbuilding and repair firm posted a 37% gain in Q3 profit. The firm said an excellent shipbuilding industry was set to drive the firm's growth this year and further ahead.
Morgan Stanley and Merrill Lynch raised their price targets for Cosco to $9.00 from $6.00 and to $10.10 from $9.15, respectively.
CITI - Buy: Strong 3Q but Focus on 2008 to 2010
Buy/Low Risk 1L
Price (31 Oct 07) S$7.75
Target price S$9.30
Expected share price return 20.0%
Expected dividend yield 0.8%
Expected total return 20.8%
Market Cap S$17,336M
US$11,954M
Robust 3Q07 results ? COS delivered a robust set of results for 3Q07 with revenues up 72% YoY to S$547m, while net income grew 37% YoY to S$97.7m (accounting for about 80% of 1H07 net earnings of S$122m). The 3Q earnings surge was due in part to contributions from its new 300,000 dwt dry dock in Zhoushan, which was completed in June 2007. For 9M07, net earnings grew 37% YoY to S$220m, which is about 70% of our full-year estimates.
Forex/hedging ? Management indicated that the group is concerned about the recent events at two Singapore companies, has made thorough checks at all its subsidiaries, and made it clear that they do not involve themselves in such forex trading activities. Normal contract hedging with the group's banks, however, are conducted and are part and parcel of their business.
Favourable Prospects ? Management remains optimistic on prospects and believes the operating environment will continue to be positive over the long term. To handle further orders, COS is embarking on an aggressive expansion plan, eventually reaching its targeted 2.73m dwt ship repair docking capacity by 4Q2010 (close to doubling its 1Q07 capacity of 1.43m dwt).
Long term view ? While quarterly results are important, we believe it is more important to look further ahead over the next three to four years and believe investors have much to look forward to. Not only do we think new orders will continue growing strongly, restructuring could change the way the market values COS, and shipbuilding capabilities may improve meaningfully.
CIMB - Cosco Corporation (S$7.75) - 3QFY07 results - Continues to surprise
Above expectations. 3Q07 net earnings of S$97.7m (up 37% yoy) are 7% above our estimate and 6% above consensus. The outperformance came from the order-book recognition of higher-value offshore and conversion jobs and higher ship-repair yields achieved from a shift from bulkers to containers and tankers. Overall ship-repair and marine-engineering gross margins rose from 26.5% in 2Q07 to 30.3%. Dry-bulkshipping gross margins also spiked from 57.2% (2Q07) to 63.8% in 3Q07. 9M07 net profit of S$220m forms 72% of our full-year forecast and consensus. 3Q07 revenue grew 72% yoy to S$547m with 89% from ship repair and marine engineering.
Excess capacity for more orders. Cosco?s order book of US$6.5bn (YTD order wins of US$6bn) comprises 105 units of bulk carriers (57,000dwt -92,500dwt) for delivery till 2011. We expect further orders for newbuilds as the group is only operating at 70% of its current capacity. Demand for bulk carriers continues to soar, underpinned by rising global demand for ion ore. The next phase of expansion between 2008 and 2010 should continue to drive the group?s capacity and order appetite. So far, Cosco has been focusing on shipbuilding and has been slow in taking up offshore projects. We believe the group will start to bid for turnkey offshore projects (e.g. full rigs) aggressively from 3Q08 onwards after the delivery of its showcase semi-submersible rig Sevan 650.
Safe hedging policy. Cosco?s lucrative and quick turnaround ship-repair business (7- 10 days for normal annual inspection, 3-6 weeks for dry dock repair) has enabled the group to shorten its receivables days and improve its cash-flow position. Excess cash is sufficient to finance the purchase of equipment or for expenditure on shipbuilding and offshore projects denominated in US$. As such, there has been no need to hedge against payables. Management says it only hedges against future US$ receivables and most contracts are less than one year.
Maintain Outperform and target price of S$8.60. Our earnings estimates remain unchanged. Cosco is trading at a premium (32x CY08 EPS) to its Singapore peers (18- 22x CY08 EPS).This is justified by its strong earnings growth (3-year CAGR forecast of 52% through to FY09) and valuations for its Chinese peers.
Market Darling Doesn?t Disappoint
♦ 37% net profit growth in 3Q
Cosco Corporation (Cosco) posted impressive earnings numbers that will please the market. The company recorded net profit of S$97.7m in 3Q07, up 37% Y/Y and up 22% Q/Q. As usual, the business was driven by the shipyard business where revenues rose 77% to S$487.8m. The previous mainstay of ship repair is now augmented by more order book-based contributions, as shown by the shift in the revenue mix for this category to 65% of total sales. Margins for the marine services business also remained healthy, with gross margins improving to 30% from 26.5% in 2Q07. The dry bulk business also remained a steady performer, with revenues of some S$53.3m, and gross margins still sitting pretty at some 63%, buoyed by high freight rates for dry bulk shipping.
♦ Order book at US$6.4bn
We estimate that Cosco?s order book stands at some US$6.4bn, of which US$6.2bn were secured in the current year. We also estimate that Cosco has orders worth approximately US$900m on option. This puts the marine services business in good shape for the next three to five yearsas it progressively digests these contracts. However, we do not believe that Cosco?s yards are anywhere close to full capacity. We would anticipate Cosco announcing even more orders; we estimate that Cosco has sufficient capacity to take on a total order book worth some US$10bn. Furthermore, this is a target that can be easily scaled upwards, depending on Cosco?s own pace of yard expansion, particularly at Zhoushan. As for the dry bulk business, while there are currently market concerns that additional capacity onstream would depress freight rates, as indicated by the recent weakening of the Baltic Dry Index (BDI), Cosco?s dry bulk charters are long-term in nature, and will not see downward reversions in the near future.
♦ No forex issues
On the hot-button topic of forex exposure, Cosco?s management took some pains to explain its own position. Firstly, there is a natural hedge that occurs as both sales and major material expenses such as steel and machinery are denominated in US dollars. The remainder is converted to renminbi, to take care of salaries and other operating costs. As for translation to Cosco?s financial reporting in Singapore dollars, Cosco undertakes to lock in the rates as and when the contract is first secured. Cosco was also quick to stress that it does not undertake speculative positions in the forex market. We believe that Cosco has sufficient controls in place to mitigate its foreign currency exposure.
♦ Maintain BUY to S$8.10 ? for now
With year-to-date net profit of S$220.1m, Cosco is well on track to exceed our full-year earnings expectations of S$305.7m. However, we will not be adjusting our forecasts at this time, as the variation is not significant and builds in some level of conservatism. Overall, however, we remain positive aboutCosco?s prospects beyond our standard forward forecast for three years. Although we are not changing our forward three-year forecasts, we are maintaining our DCF-based target price of S$8.10, with the caveat that we may raise our valuation higher as and when we see further new orders. Maintain BUY.
Shipbuilding and repair firm Cosco Corp (Singapore)
Cosco, majority-owned by China Ocean Shipping (Group) Co, said turnover leapt on thriving marine businesses and higher dry bulk freight rates, and said an "excellent" shipbuilding industry was set to drive the firm's growth this year and further ahead.
"Our group expects our order book to build up over time...we expect this segment to contribute favourably to earnings going forward," said Ji Hai Sheng, president of Cosco Corporation, in a statement.
Since last year, Cosco has won a series of big orders for conversion and construction of offshore oil and gas drilling rigs and vessels. This brought its order book to $6.1 billion at the end of September, vice-president Li Jian Xiong told Reuters.
The firm said it will expand its ship repair capacity by expanding its Zhoushan shipyard with three new berths and three dry docks totalling one million deadweight tonnes docking capacity, for completion by 2010.
It said its net profit for the quarter ending September rose to S$97.7 ($67.38 million) from S$71.5 million a year ago.
Revenue grew 72 percent to S$547 million.
Cosco said it was not exposed to foreign exchange bets because it conducted all its business in U.S. dollars.
"We don't do forex, we don't have any forex losses," Ji Hai Sheng told the results briefing.
The statement comes after two Singapore firms, Sembcorp Marine
Cosco is expected to post a 47 percent rise in full-year net profit to S$302 million, according to the average forecast of 10 analysts polled by Reuters Estimates.
The firm has sold most of its bulk shipping business to focus entirely on repairing ships and building offshore oil rigs, as well as converting oil tankers into floating production, storage and offloading vessels.
Demand has surged for rigs and ships to explore for and store oil, with U.S. oil prices hitting a record over $93 this week, while the Baltic dry freight index <.BADI> for shipping commodities such as coal and grains has hit records since May.
Cosco shares have more than tripled this year as investors welcomed its move into rig building, and on market speculation that the stock would receive a boost from Chinese funds under the Qualified Domestic Institutional Investor scheme in China.
The stock trades at 57 times forecast 2007 earnings, commanding the same multiple as Chinese peer Yangzijiang Shipbuilding
The world's top two offshore oil rig makers Keppel Corp
SINGAPORE, Oct 31 (Reuters) - Shipbuilding and repair firm Cosco Corp
"We don't do forex, we don't have any forex losses," Ji Hai Sheng, president of Cosco Corporation, told a results briefing.
The statement comes after two Singapore firms, Sembcorp Marine
wow..1000lots dumped 7.60...dont tell me SembMarine did it again? to book profit for this Qtr to offset forex loss har? hee.....interesting..
| Time | Last | Vol | Buy/Sell |
| 17:05:03 | 7.600 | 1,064 | X |
| 16:59:58 | 7.750 | 5 | S |
| 16:59:55 | 7.750 | 3 | S |
| 16:59:45 | 7.750 | 1 | S |
Merrill Lynch - Flood of contracts
Phenomenal order book growth
Cosco Corporation yesterday increased its already impressive order book with multiple shipbuilding contracts worth a total of US$1.34bn. With this latest addition to the order book, the group?s total outstanding order book now stands at approximately US$6bn.
No end to ships
The latest series of contracts are for a total of 29 bulk carriers; consisting of 17 units of 57,000dwt, 8 units of 80,000dwt and 4 units of 92,500dwt vessels. The value of each bulk carrier ranges from approximately US$41mn to US$61mn, closely mirroring the group?s previous contract win for bulk carriers.
Visibility through 2011
The latest contract comes from a wide array of foreign customers. Since January this year, Cosco has secured close to 100 bulk carrier orders, from a base of virtually nothing in 2006. Visibility now extends through the end of 2011, giving Cosco the most extensive order book in the sector.
Capacity still increasing
In 2006, Cosco?s shipyards had a total capacity of 1.2mn dwt. Currently, this has already been expanded to 1.73mn dwt. Without even breaking its stride, Cosco already has plans underway to further increase this by 60% to 2.73mn dwt in 2010. Hence, we are optimistic that orders will continue to flow.
The premier yard
Cosco has clearly established itself as one of the leading shipyards in China. We believe that the current cycle still has legs and expect the group to post earnings CAGR of 53% over the next three years. We have raised our estimates by 12% and 16% for FY2008-09. Consequently, our PO has been raised to S$9.15. Buy.
P rice objective basis & risk
Cosco Corporation (COIVF)
We have a PO of S$9.15 for Cosco Corporation based on DCF valuation. Our DCF analysis utilizes a WACC of 9%, based on a risk free rate of 3.5%, and a market risk premium of 6%. We have assumed a terminal growth rate of 5% as we are optimistic that China?s high growth rate can be sustained over the long term.
Risks to our price objective are a potential slowdown in the economic growth of China which would result in a hard landing and impact the demand for ship repair and related activities. Operational setbacks encountered during the execution of the group?s scheduled expansion plans could affect growth.
Earnings for the shipping division tend to be cyclical, and a sudden decline in freight rates caused by global economic shocks could dampen profitability. A sharp decline in the price of oil would also dent offshore demand and services, and possibly result in a delay for the group?s offshore strategy.