COSCO Corp (Singapore)’s revenue for 2Q13 declined by 9% YoY to S$890m, while net profit fell by 56% to S$12.0m. For 1H13, the group’s net profit fell by 61% to S$21.8m, forming 45% and 29% of ours and the street’s FY13 estimates respectively. As its operating weakness is more severe than what the street had expected, we think that the street would likely lower its FY13F forecasts. The group’s balance sheet is debt-laden with net debt-to-equity ratio at 1.4x and S$1.3b of loans due within 12 months. Should the credit situation in China deteriorates further, the group may become vulnerable. Maintain SELL with unchanged FV of S$0.60.
1H12 results below consensus
COSCO Corp (Singapore)’s revenue for 2Q13 declined by 9% YoY to S$890m, while net profit fell by 56% to S$12.0m. For 1H13, the group’s net profit fell by 61% to S$21.8m, forming 45% and 29% of ours and the street’s FY13 estimates respectively. As its operating weakness is more severe than what the street had expected, we think that the street would likely lower its FY13 forecasts. We keep our estimates unchanged.
Operational review
During the recent quarter, turnover from shipyard operations decreased 9% YoY to S$877m, mainly due to lower contribution from shipbuilding and repair segments, which more than offset the growth in marine engineering segment. Turnover from drybulk shipping and other businesses also declined by 10% YoY to S$13.1m on lower freight rates. Other income fell by 53% YoY to S$16.0m, largely the result of lower value of scrap metals and exchange loss from the strengthening of RMB against USD. Administrative costs rose by 20% to S$47.7m due to provisions made for receivables impairment.
New orders likely to fetch low margins
As of 1H13, the group’s order-book stood at USD6.7b with progressive deliveries up to 2015. Although it looks stable, the orders are likely to fetch low margins due to stiff market competition. Also, the backend loaded payment terms of the new orders would put pressure on COSCO’s debt-laden balance sheet (with net debt-to-equity ratio of 1.4x and S$1.3b of loans due within 12 months). Should the credit situation in China deteriorates further, the group may become vulnerable. MaintainSELL with unchanged FV of S$0.60.
COSCO Corp (Singapore)’s revenue for 2Q13 declined by 9% YoY to S$890m, while net profit fell by 56% to S$12.0m. For 1H13, the group’s net profit fell by 61% to S$21.8m, forming 45% and 29% of ours and the street’s FY13 estimates respectively. As its operating weakness is more severe than what the street had expected, we think that the street would likely lower its FY13 forecasts. We keep our estimates unchanged.
Operational review
During the recent quarter, turnover from shipyard operations decreased 9% YoY to S$877m, mainly due to lower contribution from shipbuilding and repair segments, which more than offset the growth in marine engineering segment. Turnover from drybulk shipping and other businesses also declined by 10% YoY to S$13.1m on lower freight rates. Other income fell by 53% YoY to S$16.0m, largely the result of lower value of scrap metals and exchange loss from the strengthening of RMB against USD. Administrative costs rose by 20% to S$47.7m due to provisions made for receivables impairment.
New orders likely to fetch low margins
As of 1H13, the group’s order-book stood at USD6.7b with progressive deliveries up to 2015. Although it looks stable, the orders are likely to fetch low margins due to stiff market competition. Also, the backend loaded payment terms of the new orders would put pressure on COSCO’s debt-laden balance sheet (with net debt-to-equity ratio of 1.4x and S$1.3b of loans due within 12 months). Should the credit situation in China deteriorates further, the group may become vulnerable. MaintainSELL with unchanged FV of S$0.60.
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