COSCO Corp (S’pore) reported a decent set of results that were within ours and the street’s expectations. FY12 revenue decreased 10% to S$3.7b, while PATMI fell 24% to S$106m. The declines largely reflected the general weakness in the shipbuilding environment and COSCO’s initial expansion into the offshore segment. While the group’s margins appear to have stabilized, its cash generation remains weak. Against the backdrop of an uncertain operating environment, the rising net gearing ratio is also another concern. Rolling forward to FY13F, we raise our fair value estimate to S$0.90 (on 1.5x P/B). Maintain HOLD.
FY12 results within expectations
COSCO Corp (S’pore) reported a decent set of results that were within ours and the street’s expectations. FY12 revenue decreased 10% to S$3.7b, while PATMI fell 24% to S$106m. The declines largely reflected the general weakness in the shipbuilding environment and COSCO’s initial expansion into the offshore segment. The group’s order-book improved to USD6.1bn, up from USD5.7b as of last quarter-end.
Margins appear to have stabilized…
In 4Q12, COSCO wrote back S$17.6m of provisions for its contracts. This represents the third consecutive quarter of write-backs after an eight-quarter trend of making provision for expected losses. This implies improved execution for its shipbuilding and offshore projects. Its margins also appear to have stabilized. Excluding the provisions and write-back of provisions, the group’s gross margin was 12.2% for FY12, slightly lower than 12.8% in the previous year.
But cash generation remains weak
However, the group’s cash generation capability remains weak. Despite a 10% decline in revenue in FY12, cash outflow in operating activities ballooned to S$580m from just S$52m a year ago. The main culprit was its trade and other receivables. This is largely because payment schedules for the recent contracts are more back-loaded (typically 20/80), resulting in the shipyard having to fund most of the shipbuilding costs upfront, before collecting back the amounts owed on vessel delivery dates.
Will net gearing continue to rise?
COSCO’s net gearing (net debt against shareholder’s equity) increased to 1.0x as of end-2012 (end-2011: 0.4x). As the group continues construction in 2013 on the low-margin and back-loaded contracts secured in 2010-2012, its debt level may continue to rise incrementally going forward. Meanwhile, management acknowledged that the business and operating conditions in 2013 may be even more difficult and challenging. Rolling forward to FY13F, we raise our fair value estimate to S$0.90 (on 1.5x P/B). Maintain HOLD.
COSCO Corp (S’pore) reported a decent set of results that were within ours and the street’s expectations. FY12 revenue decreased 10% to S$3.7b, while PATMI fell 24% to S$106m. The declines largely reflected the general weakness in the shipbuilding environment and COSCO’s initial expansion into the offshore segment. The group’s order-book improved to USD6.1bn, up from USD5.7b as of last quarter-end.
Margins appear to have stabilized…
In 4Q12, COSCO wrote back S$17.6m of provisions for its contracts. This represents the third consecutive quarter of write-backs after an eight-quarter trend of making provision for expected losses. This implies improved execution for its shipbuilding and offshore projects. Its margins also appear to have stabilized. Excluding the provisions and write-back of provisions, the group’s gross margin was 12.2% for FY12, slightly lower than 12.8% in the previous year.
But cash generation remains weak
However, the group’s cash generation capability remains weak. Despite a 10% decline in revenue in FY12, cash outflow in operating activities ballooned to S$580m from just S$52m a year ago. The main culprit was its trade and other receivables. This is largely because payment schedules for the recent contracts are more back-loaded (typically 20/80), resulting in the shipyard having to fund most of the shipbuilding costs upfront, before collecting back the amounts owed on vessel delivery dates.
Will net gearing continue to rise?
COSCO’s net gearing (net debt against shareholder’s equity) increased to 1.0x as of end-2012 (end-2011: 0.4x). As the group continues construction in 2013 on the low-margin and back-loaded contracts secured in 2010-2012, its debt level may continue to rise incrementally going forward. Meanwhile, management acknowledged that the business and operating conditions in 2013 may be even more difficult and challenging. Rolling forward to FY13F, we raise our fair value estimate to S$0.90 (on 1.5x P/B). Maintain HOLD.
No comments:
Post a Comment