Monday, December 23, 2013

COSCO : Poised For A Comeback In 2014? (UOBKH)

Share Price S$0.73
Target Price S$0.85
Poised For A Comeback In 2014?

We estimate ytd contract wins at US$3b, surpassing our projection of US$2.5b. We raise our 2014-15 net profit forecasts by 7-13% on higher contract win assumptions of US$3.0b each for 2013 and 2014 (previously US$2.5b). Improved dry-bulk shipping sentiments, if they continue throughout 2014, could spark a new dry-bulk shipbuilding cycle. Poor earnings (as a result of cost provisions) are currently dampening share price upside. Maintain HOLD. Target price: S$0.85. Entry price: S$0.70.

• Better-than-expected contract wins. We estimate COSCO Corp (S)’s (COSCO (S)) contract wins ytd at $3b (2012 estimate: US$2.1b), of which S$2.5b are offshore-related projects and the balance S$0.5b shipbuilding contracts. Contract wins have exceeded our projection of US$2.5b (S$2.0b offshore and S$0.5b shipbuilding) for 2013.

• Improved dry-bulk shipping sentiments. Dry-bulk shipping rates appear to have emerged from their cyclical bottom. While 4Q is typically a seasonally high period for dry-bulk shipping, the Baltic Dry Index (BDI) - currently at 2,156 after its recent peak of 2,337 on 12 Dec 13 - is three-fold of its level of 720 a year ago. If dry-bulk shipping rates continue to improve throughout 2014 (notwithstanding a seasonal low in 1Q14), shipyards are likely to see a new dry-bulk shipbuilding cycle. Traditionally, Chinese shipyards dominate in the global building of dry-bulk carriers.

• A new dry-bulk shipbuilding cycle is likely to unfold after a 3-year lull. Global dry bulk shipbuilding orderbook - which peaked at 323.2m dwt (or at an enormous 76% of dry bulk trading fleet) in 2008 - has gradually shrunk on vessel deliveries and cancellations over the last five years. Orderbook - currently at 142.2m dwt (18% of trading fleet) – is returning to normal levels. 2014 could see the beginning of a new dry-bulk shipbuilding cycle.

• Range-bound for the time being. We believe COSCO’s share price is seeing support from improved dry-bulk shipping sentiments, but its upside is capped by poor earnings which are affected by resumption in provisions for project cost over-run. The group is still on a learning curve for certain offshore projects. Another share price dampener is its DP3 Deepwater Drillship legal dispute. The customer of this vessel has terminated the order and requested for a refund of US$110m plus other payments. COSCO (S) is in contact with several potential buyers (international customers) to acquire the drillship.

• But emerging from the woods. Nevertheless, COSCO (S) continues to gain traction in offshore engineering while an earnest new dry-bulk shipbuilding cycle could unfold in 2014. COSCO (S)’s P/B of 1.3x for 2013 is near the cyclical trough level of 1.1x, but with a mere ROE of 4-6% for 2014-15, it is still more expensive than Yangzijiang Shipbuilding (YZJ) which is trading at 1.2x 2013F P/B but commands a higher ROE of 13-14% for 2014-15.

• Raise 2014-15 net profit forecasts by 7-13%. We raise our annual contract win projections for 2013 and 2014 from US$2.5b to US$3.0b each but maintain our projection of US$3.5b for 2015. As a result, our net profit forecasts for 2014 and 2015 are increased by 13% and 7% to S$63.0m and S$93.0m respectively, but our forecast for 2013 is relatively unchanged.

• Maintain HOLD. We raise our target price marginally from S$0.84 to S$0.85, based on 1.3x 2014F P/B. COSCO (S)’s 1-year forward P/B mean since 2009 (excluding the pre- 2009 meteoric P/B) is 2.2x. We continue to prefer YZJ (YZJ SP/ BUY/Target: S$1.39) over COSCO (S) as the beginning of a new shipbuilding cycle is expected to benefit stronger Chinese yards first. YZJ has an excellent track record in execution.

• Accumulate on dips. For COSCO (S), we recommend an entry level of S$0.70 and below. Current share price is partially buoyed by positive sentiments on dry-bulk shippingrelated stocks on the back of a seasonally high BDI. We expect a seasonal correction in the BDI in the near term to a trough level in end-January/early-February during the Chinese New Year holidays.

Source/Extract/Excerpts/来源/转贴/摘录: UOBKH-Research,
Publish date: 20/12/13

No comments:

Post a Comment

Warren E. Buffett(沃伦•巴菲特)
Be fearful when others are greedy, and be greedy when others are fearful
别人贪婪时我恐惧, 别人恐惧时我贪婪
投资只需学好两门课: 一,是如何给企业估值,二,是如何看待股市波动
吉姆·罗杰斯(Jim Rogers)

乔治·索罗斯(George Soros)



高估期间, 卖对, 不卖也对, 买是错的。
低估期间, 买对, 不买也是对, 卖是错的。

Tan Teng Boo

There’s no such thing as defensive stocks.Every stock can be defensive depending on what price you pay for it and what value you get,
  • Selected Indexes 52 week range

  • Margin of Safety

    Investment Clock

    World's First Interactive Investment Clock