COSCO Corp (S’pore)’s 1Q13 revenue and net profit attributable to shareholders came in at S$733m (-25% YoY) and S$9.7m (-65% YoY) respectively. Turnover from shipyard operations, consisting of ship repair and shipbuilding, decreased by 26% YoY to S$719m in 1Q13 (1Q12: S$966m), while turnover for dry bulk shipping and other businesses increased by 8% YoY to S$13.8m (1Q12: S$12.8m). All in all, 1Q13 performance was disappointing with PATMI forming only about 9-10% of ours and consensus’ FY13F estimates. We now cut our FY13F-14F PATMI estimates by 50-60% and pare our fair value estimates to S$0.76 (previously S$0.90) on 1.3x P/B. We expect the street to do the same. Downgrade from Hold to SELL.
1Q net profit below expectations
COSCO Corp (S’pore)’s 1Q13 revenue and net profit attributable to shareholders came in at S$733m (-25% YoY) and S$9.7m (-65% YoY) respectively. Turnover from shipyard operations, consisting of ship repair and shipbuilding, decreased by 26% YoY to S$719m in 1Q13 (1Q12: S$966m), while turnover for dry bulk shipping and other businesses increased by 8% YoY to S$13.8m (1Q12: S$12.8m). All in all, 1Q13 performance was disappointing with PATMI forming only about 9-10% of ours and consensus’ FY13F estimates.
Margin pressure continues
Gross profit margin remained stable at 10.7% in 1Q13, comparable with the 10.1% in the year-ago quarter. However, net margin declined to 1.3% (1Q12: 2.8%), mainly due to (1) lower sale of scrap materials, (2) an exchange loss, and (3) higher finance expenses. As the group continues construction on the low-margin contracts in its order-book, management expects its operating margins to continue “under great pressure notwithstanding improving gains in efficiency and productivity”.
Offshore competition intensifying
The group secured US$254m orders in 1Q13, bringing its order-book to US$6.4b as at quarter-end. We believe that after COSCO completes most of its shipbuilding orders (23 bulk carriers) this year, it will have a larger exposure to the offshore segment. However, competition within the offshore space is also intensifying with an increasing number of new entrants. The learning curve for offshore products is also another issue which could put pressure on COSCO’s profit margin.
Downgrade to SELL
With the poor 1Q13 results, we now cut our FY13F-14F PATMI estimates by 50-60% and pare our fair value estimates to S$0.76 (previously S$0.90) on 1.3x P/B. We expect the street to do the same. Downgrade from Hold to SELL.
COSCO Corp (S’pore)’s 1Q13 revenue and net profit attributable to shareholders came in at S$733m (-25% YoY) and S$9.7m (-65% YoY) respectively. Turnover from shipyard operations, consisting of ship repair and shipbuilding, decreased by 26% YoY to S$719m in 1Q13 (1Q12: S$966m), while turnover for dry bulk shipping and other businesses increased by 8% YoY to S$13.8m (1Q12: S$12.8m). All in all, 1Q13 performance was disappointing with PATMI forming only about 9-10% of ours and consensus’ FY13F estimates.
Margin pressure continues
Gross profit margin remained stable at 10.7% in 1Q13, comparable with the 10.1% in the year-ago quarter. However, net margin declined to 1.3% (1Q12: 2.8%), mainly due to (1) lower sale of scrap materials, (2) an exchange loss, and (3) higher finance expenses. As the group continues construction on the low-margin contracts in its order-book, management expects its operating margins to continue “under great pressure notwithstanding improving gains in efficiency and productivity”.
Offshore competition intensifying
The group secured US$254m orders in 1Q13, bringing its order-book to US$6.4b as at quarter-end. We believe that after COSCO completes most of its shipbuilding orders (23 bulk carriers) this year, it will have a larger exposure to the offshore segment. However, competition within the offshore space is also intensifying with an increasing number of new entrants. The learning curve for offshore products is also another issue which could put pressure on COSCO’s profit margin.
Downgrade to SELL
With the poor 1Q13 results, we now cut our FY13F-14F PATMI estimates by 50-60% and pare our fair value estimates to S$0.76 (previously S$0.90) on 1.3x P/B. We expect the street to do the same. Downgrade from Hold to SELL.
No comments:
Post a Comment