COSCO CORPORATION (S) LTD
F83.SI
Cosco Corporation - From bad to worse
- Massive impairments/provisions in 4Q drags FY15 into a huge loss of S$570m
- Expected to remain in the red for the next 2 years
- Net gearing of 3.7x is a concern
- Maintain FULLY VALUED with a reduced TP of S$0.24
No signs of recovery.
- We maintain FULLY VALUED on Cosco with a reduced TP of S$0.24 (prev S$0.32), based on 0.8x FY16 P/B.
- The huge S$570m net loss in FY15 has wiped out almost 40% of its book value.
- We see limited re-rating catalysts with the elimination of the privatisation angle in the near term.
- Cosco continues to face multiple headwinds – deferments/cancellations and cost overruns amid the sector’s downturn.
Challenges ahead.
- Cosco’s hefty gross orderbook of US$8bn is a double-edged sword. The shipbuilding contracts on its orderbook are of low value while its offshore segment continues to see a steep learning curve with its diversified product range.
- Making things worse, its O&G customers are delaying rig deliveries in view of the lacklustre chartering market and could potentially see more cancellations in a prolonged downturn.
Lingering concerns over the drillship and cylindrical rig sagas.
- Given the weak market sentiment and abundant supply of new drilling rigs, it will be challenging for Cosco to conclude the sale of the cancelled drillship unit.
- Meanwhile, the 4th Sevan cylindrical rig unit, which is near completion, faces risk of cancellation as the customer has failed to secure a charter contract and Cosco is held responsible for the delivery delay.
Valuation:
- We lower our target price to S$0.24, as book value was impaired by the big losses in 4Q15, pegged to 0.8x FY16 P/BV.
- P/BV is a more appropriate valuation metric than PE, given the low earnings visibility and expectation of losses ahead.
- We downgrade the stock to FULLY VALUED in view of downside risks.
Pei Hwa Ho
DBS Vickers
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http://www.dbsvickers.com/
2016-02-16
DBS Vickers
SGX Stock
Analyst Report
0.24
Down
0.32
