Price (01 Aug 13 , S$) 0.75
TP (prev. TP S$) 0.60 (0.60)
2Q13 below expectations despite tax gain; net gearing increases further
● Cosco’s 1H13 revenue of S$1,623 mn represents 47% of consensus FY13 forecasts; its net profit of S$21.8 mn represents a mere 29% of consensus 1Q13 forecasts. While 1Q13 gross margin of 10.8% was in line with our expectations, the company was negatively impacted by lower gain on sale of scrap material, higher interest costs, offset by a tax credit in 2Q13.
● With continued weakness in the shipbuilding segment and progressive recognition of new offshore projects, we expect gross margin to remain under pressure. Offshore revenues represent 75% of 1H13 revenues, vs. 53% in 2012. Cosco’s commercial shipbuilding order book has marginally changed to 28 vessels.
● Interest expense increased to S$28 mn in 2Q13 from S$26 mn in 2Q12, while net gearing rose to a high of 0.87x. We expect further cash outflow in subsequent quarters as Cosco works on projects with back-end loaded payment terms.
● We maintain our UNDERPERFORM rating and target price of S$0.60, due to concerns about the company’s earnings and balance sheet strength.
Earnings below expectations despite tax credit
Underlying gross margin of 10.8% improved slightly from 10.7% in 1Q13 and 10.4% in 2Q12. With continued weakness in the shipbuilding segment and progressive recognition of new offshore projects, we expect gross margins to remain under pressure in FY13. Offshore and conversion revenues now represent 75% of 1H13 revenues, vs. 53% in 2012. Cosco also benefited from a tax credit of US$2.4 mn in 2Q13, due to timing differences in the grant of tax concessions. Assuming 2012 effective tax rate of 26.1%, 2Q13 net profit will be closer to S$7.7 mn instead of S$12.0 mn.
Cosco has secured US$1.2 bn of orders YTD, including four oil tankers and one LNG carrier worth c.US$280 mn. Cosco's order book is left with 28 vessels in 2Q13, marginally changing from 1Q13. Prior to 2Q13, Cosco's shipbuilding orderbook largely consisted of bulk carriers.
Net gearing increases to 0.87x
Interest expense increased 9% YoY to S$28.4 mn in 2Q13 from S$26.1 mn in 2Q12, due to the higher level of borrowings. Gross borrowings increased by S$275 mn QoQ, with net gearing rising from 0.82x in 1Q13 to 0.87x in 2Q13. We expect further cash outflow in subsequent quarters as Cosco works on projects with backend-loaded payments terms.
We reduce our 2013-15E EPS by 19-21% on lower gain due to the sale of scrap materials and other income. We maintain our UNDERPERFORM rating and target price of S$0.60, based on 1x P/B.
Source/Extract/Excerpts/来源/转贴/摘录: Credit Suisse
Publish date: 02/08/13