Cosco - 4QFY07 results - Full speed ahead
(CIMB - Outperf $7.33) 22 Feb 08
Above expectations. 4Q07 core net profit of S$116.5m (up 178% yoy) was 36% above
our expectations and 29 % above consensus. Revenue rose 132% yoy to S$847m. Full
year core profit came in at S$337m, up 86% yoy on revenues of S$2.3bn (up 86% yoy).
This is mainly driven by stronger-than-expected order book recognition from shipbuilding,
offshore and conversion and ship repair with revenues of S$2.03bn, doubled that of
FY06. FY07 dry bulk charter revenues grew 40% to S$208m on the back of firmer charter
rates and buoyant shipping market. 4Q07 EBITDA margin dropped to 20% from 31% due
to higher shipbuilding jobs recognised which typically fetch lower margins relative to
repairs and conversions.
Harvesting first fruits of order book built-up and chasing higher value jobs. We
believe Cosco has just started to book in the offshore/conversion and shipbuilding orders
clinched in end-06 and 1Q07. Current net order book stood at about US$7bn compared
to US$542m in end-06 with impressive order momentum of US$6bn in 2007. In ship
repair, Cosco handled 480 jobs (down 18% yoy) but average revenue per ship improved
21% yoy to RMB9.3m.
What about rising costs? While we expect labour and raw material (steel) costs to
increase going forward, we believe margins contractions could be insignificant as the
group enjoys better operating leverage from higher project volume. Our lower EBITDA
margins for FY08 of 23% (FY07:25%) is mainly to account for higher shipbuilding jobs
with lower margins.
Bullish on FY08. Cosco is scheduled to deliver 10 bulk carriers and some high value
offshore/conversion contracts in FY08 including the Sevan rigs and FDPSO which could
underscore significant revenue recognition.
Maintain Outperform but target price cut to S$7.33 from S$9.09, still based on sumof-
the-parts valuation. We upgraded our FY08 earnings estimates by 3% to account for
stronger shipping income and introduce our FY10 forecasts. A final dividend of 4 Scts,
along with a special dividend of 3 Scts were declared. We applied a 20% discount to our
forward P/E to 24x (from 30x) to reflect lower investment risk appetite in the market.
Cosco is trading at compelling valuations of 17x CY08 and 13x CY09 against its 25% 3-
year CAGR through to 2010.
Cosco - FY07 Results
(Phillip - Buy $6.70) 22 Feb 08
Results in line. Cosco Corp announced yet another strong set of results for FY07.
Turnover came in below our estimates, at S$2,261.7 mil (+86.1% yoy). PATMI came
in within expectations, at S$336.6 mil (+63.9% yoy). Although all segments showed
improvements over FY06, stronger results were due mainly to an 89.8% increase in
revenue contribution from ship repair, shipbuilding and marine engineering business.
The Group proposed an ordinary dividend of 4.0 cents/sh, and an additional special
dividend of 3.0 cents/sh.
FY08 looking swell. The shipbuilding segment made its first contribution to revenue
in FY07, augmenting top line by approximately S$325.1 mil. The shipbuilding
business should boost top line by a significant degree in FY08, as it makes its first full
year contribution. Net order book for the shipyard business stands at S$6.5 B at
present, and we expect a sizable portion to be progressively recognized in FY08.
Cosco also expects its new yard in Lianyungang, Jiangsu, to contribute to earnings in
08. Operations have already begun at the new yard, and an 80,000 dwt floating dock
has already been added.
Ongoing facility expansion to add capacity. Cosco is still in the midst of adding to
capacity at its existing yards. When this is completed in 2010, the Group will have
access to an additional 3,100,000 sq m of land, 4 new dry docks (1.3m dwt), and 3
new berths, totaling 1km. The Group has also announced the plans for developing a
new shipyard at Qidong, Jiangsu province. When fully built in 2011, the new yard will
encompass 8 new berths for ship repair, conversion and offshore operations.
TP raised to S$6.70, Maintain BUY. We have adjusted our top and bottom line
estimates for FY08F up by 10.0% and 15.2%, respectively, as we expect a higher
proportion of revenue recognition this year. We have also adjusted our margin
assumptions, as we believe margins should keep slightly better than previously
anticipated. In addition, we have introduced FY09F estimates into our forecasts.
Based on 26.4x FY08F earnings, our revised fair value estimate of S$6.70 implies an
upside of 53.0% from previous close. Maintain BUY.
Cosco - Rising risks, key is in execution
(DBSV - Buy $6.70) 22 Feb 08
Story: FY07 Net profit(+64% yoy) was 5% above our
forecasts on the back of lower tax, and strong
contributions from shipping(avg day rates +55% to
US34k). 4Q07 sales was boosted by shipbuilding(S$315m)
which accounted for 36% of sales. However, the lower
margin shipbuilding projects caused 4Q EBIT margins to
drop from 3Q’s 26% to 17%. We estimate shipbuilding
EBIT margins at only 8% compared to shiprepair and
conversions margins at 18%. We attribute this to the
group frontloading its cost, as this is the initial phase of
earnings recognition from shipbuilding.
Point: Order book remains strong at US$6.5bn, of which
80% are shipbuilding orders stretched up to 2011. We
expect the group to focus on clinching offshore and
rigbuilding projects this year, due to its new rigbuilding
yard at Qitong, which when fully completed by 2010, will
be capable of building up to six rigs annually. Key concern
lies in a) rising steel prices b) strengthening Rmb vs US$
and c) rising labour cost in China. Steel prices have risen
37% in 2007 and +6% YTD in 2008, the trend expected
to continue on the back of the rise in iron ore prices(+65%
in Japan). With 20% of its shipbiulidng cost in steel, a
10% rise in steel prices will impact its net profit by -4%.
Relevance: We have cut our FY08(-5%) and FY09(-10.6%)
to impute rising steel and labour costs. Our target price
has been cut to S$6.70, following the de-rating of the
sector due to rising operational risks. Our SOP value is
pegged to 25x its shiprepair and offshore conversions
earnings in FY09, and 20x on shipbuilding earnings.
Maintain BUY, the stock offers decent upside of 53%,
trading at P/E of 19x (FY08) vs its eps CAGR of 48%, and
upside from its potential restructuring to raise its stake in
its crown jewel, Cosco Shipyard Group.
COSCO Corp Credit Suisse
Maintain OUTPERFORM
FY07 results: tax rebates help earnings top analyst estimates EPS: ▼ TP: ▼
● COSCO reported a strong fourth quarter yesterday, with record
PATMI of S$ 116.6 mn (up 86% YOY), beating our FY07
estimates by 12% and Street estimates by 7%.
● The bottom line in 4Q was boosted by one-off tax rebates for land
acquisition and development in China for shipbuilding. Although a
positive surprise, the rebate is event specific and we have not
factored in further rebates in our numbers.
● Revenue of COSCO Shipyard Group (not listed) was 10% below
our expectations at S$775 mn, owing to slower revenue
recognition on some offshore projects. We adjusted our forecast.
● Marine revenue and profitability came in ahead of our estimates.
● COSCO has also announced a dividend payout of 7 cents a
share, representing a 50% payout ratio.
● We have adjusted our estimates by -3% to 0.2% in FY08 and 09.
Our SOTP value is slightly lowered to S$6.20 from S$6.30,
implying 42% upside potential from current levels. Reiterate
OUTPERFORM.
