Cosco Corporation Expanding capacity with new Shipyard at Lianyungang

DBS Vickers

Story: Cosco has entered into a 60/40 joint venture to operate a new
shipyard at Lianyungang, with an investment outlay of only S$21m for its
stake, funded internally.

Point: The shipyard, ready since last year, will have 3 berths and a 80Kdwt
floating dock, land area 220k sq m. Although small, this yard is well
located in Jiangsu region and is poised to be eventually developed into a
major shiprepair yard for the group. We expect the yard to initially
contribute Rmb500m, in sales, similar to Guangzhou’s shiprepair sales, or
10% of group shiprepair sales. Located close to Nantong, this shiprepair
and conversion yard will free up capacity at Nantong allowing it to focus
on oil and gas, offshore projects.

Relevance: Stock price has declined 30% from its peak due to the weak
market and overhang on the share price arising from SembCorp Marine’s
recent placement of Cosco shares. At current price, the stock is trading
at P/E of 22.7x(FY08) and 16.3x(FY09) vs CAGR of 54%. Maintain BUY, target
price $9.50.