Brokers' Take

Cosco Corp
Jan 25 close: $1.29 (-1 cent)

26 Jan 2005
The Business Times

JP Morgan Asia Pacific Equity Research, Jan 21

WE believe Cosco's current share price has yet to keep up with the anticipated growth in earnings, despite its solid share price performance in the past year. We expect Cosco to sustain its supernormal growth rate in FY05 and FY06 with net profits projected to grow at 77 per cent and 35 per cent, respectively.

Shipping will continue to benefit from the positive lagging effects of the strong dry bulk rates. Current freight rate renewals are pointing to an impressive 3x jump to US$30,000 per day over the previous charter contracts. Half of Cosco's fleet, those locked in 2003, are due for renewals and are set to enjoy significantly higher renewal rates with implied margins at 73 per cent.

Cosco's recent acquisition of a 51 per cent stake in the enlarged Cosco Shipyard Group (CSG) in China should provide the company with a sustained earnings growth option as it leverages on the strength of its low-cost franchise while capturing demand growth for shiprepair activities. SembCorp Marine's involvement, through a 30 per cent stake in CSG, lends comfort to concerns on execution and learning curve risks. We have increased our 12-month target price for Cosco from $0.98 to $1.62 using sum-of-parts methodology.
OVERWEIGHT

Compiled by JOYCE KOH