COSCO Shipping International - SAC Capital 2021-10-14: Fine Balancing Act Between Returns And Expansion

COSCO SHIPPING INTL(S) CO. LTD (SGX:F83)

COSCO Shipping International - Fine Balancing Act Between Returns And Expansion

COSCO Shipping became an integrated logistics provider in Mar 2018 with the acquisition of Cogent Holdings, which manages 3.5m sf of warehousing space in Singapore (including 1.6m sf at owned Cogent 1.Logistics Hub), and offers transportation, container depot, ISO tank depot, container haulage and freight forwarding services. It acquired complementary logistics businesses in Malaysia, Indonesia and Vietnam to expand its regional footprint.
Logistics takes the lion’s share of 70% of revenue and 115% of EBIT in FY20 (EBIT margin of 15.5%). Contributions from other businesses comprising ship-repair and property ownership and management were meagre.

COSCO Shipping International (SGX:F83) positions itself as an integrated logistics service providers in Southeast Asia. Logistic services form the main bulk of the Group’s business and revenue. Its extensive portfolio of customers includes companies from petrochemical, consumer and construction chemical, oil & gas and marine industries. It also leases out its facilities to third party logistics service providers.
COSCO has established an intensive logistics network across Singapore, Malaysia, Indonesia and Vietnam through its subsidiaries and associates.

Logistics services operate mainly out from Cogent 1.Logistics Hub which is floor loadings ranging from 20 to 180kN/m2. This added capacity allows Cogent to cater to the growing demand for logistics services from petrochemical companies in the vicinity.

COSCO leases its vessels to charterers for the transportation of raw materials such as grains, coal, iron ore and cement on time or voyage charter. It owns 3 Supramax vessels with a total tonnage of 163,000 tons and an average age of 14 years.
Apart from its own fleets, COSCO also charters in bulk carriers at a thin margin to cope with additional demand. Orders usually come from long term regular customers.

COSCO is a master tenant for The Grandstand, a 1m sq ft property located at 200 Turf Club Rd rates were lower than 1H20 rental rates.

COSCO engages in ship repair & marine engineering activities including fabrication work services and provision of marine outfitting components. Located at 52 types of vessels. (e.g. oil tankers, bulk carriers and container liners).

COSCO actively looks for strategic acquisitions and investments to expand its world. Discussions are underway although it is temporarily delayed due to Movement Control Order.

We think the valuation (P/B 1.3x) is pricing in its strong parentage. At cost of debt of ~2%, and net gearing of 49%, COSCO needs higher returns to support its valuation. The planned divestment of a 60% stake in dry bulk shipping operations for S$57m could lift ROIC.
See
See the report attached below for complete analysis on COSCO Shipping (SGX:F83).

Lim Shu Rong SAC Capital Research | Peggy Mak SAC Capital | Lam Wang Kwan SAC Capital | https://www.saccapital.com.sg/ 2021-10-14

SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998 SAME 99998