CIMB Research on 11 Sept 2012
MAINTAIN "underperform" and target at its trough P/B of 1.4x. No change to our EPS as the latest contract falls within our 2012 US$2 billion order assumption. Risks include margin deterioration, execution delays and order cancellations by customers.
Provisions for cost overruns could remain the norm for another few quarters. Cosco Qidong has secured a US$200 million harsh-environment semi-sub accommodation rig for delivery in Q2 2015. This is the second semi-sub accommodation that Cosco has secured this year. The first (also valued at US$200 million) was for Mexican Cotemar in May 2012. Cosco's order momentum has not abated with US$1.4 billion of orders secured YTD, but profitability from these contracts remains questionable. These semi-sub accommodation rigs are priced 30-35 per cent lower than similar units being built by Sembcorp Marine (US$292 million) and Keppel Corp (US$315 million) for more established players, Prosafe and Floatel. Customers' specifications and equipment could be the main variances but so are lower margins, we believe.
Apart from execution risks, cancellation risks arising from customers' inability to secure financing could be another obstacle for Cosco. Other than Seadrill, SapuraCrest and Tidewater, most of Cosco's offshore customers are venture capitalists, private equity funds or owners without established operating records.
UNDERPERFORM
MAINTAIN "underperform" and target at its trough P/B of 1.4x. No change to our EPS as the latest contract falls within our 2012 US$2 billion order assumption. Risks include margin deterioration, execution delays and order cancellations by customers.
Provisions for cost overruns could remain the norm for another few quarters. Cosco Qidong has secured a US$200 million harsh-environment semi-sub accommodation rig for delivery in Q2 2015. This is the second semi-sub accommodation that Cosco has secured this year. The first (also valued at US$200 million) was for Mexican Cotemar in May 2012. Cosco's order momentum has not abated with US$1.4 billion of orders secured YTD, but profitability from these contracts remains questionable. These semi-sub accommodation rigs are priced 30-35 per cent lower than similar units being built by Sembcorp Marine (US$292 million) and Keppel Corp (US$315 million) for more established players, Prosafe and Floatel. Customers' specifications and equipment could be the main variances but so are lower margins, we believe.
Apart from execution risks, cancellation risks arising from customers' inability to secure financing could be another obstacle for Cosco. Other than Seadrill, SapuraCrest and Tidewater, most of Cosco's offshore customers are venture capitalists, private equity funds or owners without established operating records.
UNDERPERFORM
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