Brokers' Take

Cosco Corp, May 13 close : $0.75

14 May 2004
The Business Times

CLSA Asia-Pacific Markets, May 12

COSCO Singapore (CCS) just reported a 284 per cent year-on-year earnings jump for 1Q04, but this is in line with our FY04 estimates. 1Q04 has delivered 21 per cent/20 per cent of our FY04 revenue/net profit estimate.

We believe consensus forecasts still lag reality and should rise. The market appears to be well ahead of the curve and is now watching weakening bulk carrier rates - for example, the Baltic Dry Index has fallen 29 per cent year-to-date. We believe we have already seen the peak in bulk charter rates for this cycle in 1Q04. Still, a typical seasonal upturn in demand should keep rates relatively stable for the rest of the year.

The key positive future event is the possibility of attractive asset injections by the parent. We believe the proposed move by Cosco's ultimate parent Cosco Group (China) to bring Cosco Corp (Singapore) directly under its charge is a prelude to further asset injections.

For now, Cosco shares remain relatively expensive for a cyclical company. At 76 cents, the stock is trading at a 24.5 per cent premium to our assessed RNAV (revalued net asset value) of 61 cents. We have pegged fair value at 12 times PE, that is, 79 cents. Given limited upside, we retain SELL.

Compiled by KENNETH LIM