Brokers' Take

Cosco Corporation
Feb 11 close: $1.39

12 February 2005
The Business Times

A SHIPREPAIRER rather than a shipper: Cosco's earnings profile will change significantly from 2005, now that it has a 51 per cent stake in Cosco Shipyard Group. We estimate that shiprepair is likely to make up 60 per cent of earnings in FY05 compared with 40 per cent in FY04. Further, capacity will increase significantly from 900,000 dwt currently to 2.2 million dwt by 2007 with the bulk of expansion taking place at Zhoushan Shipyard. It is planning to add a mega 500,000 dwt yard that will enable it to repair rigs and VLCCs, leveraging off SMM's expertise in this area. By contrast, shipping earnings will only make up 40 per cent of FY05 earnings, with the percentage declining to 35 per cent in FY06 as more shiprepair capacity comes onstream.

Q4 earnings expected to be 107 per cent higher at $18.9 million: Rates for four vessels (out of 13) were renewed in Q4. Going by the increase seen on the BFI, we believe that the charters were renewed at significantly higher rates.

Target price raised: We are adjusting our FY05 estimates 6 per cent upwards to $103 million and adding a new FY06 forecast of $123 million. Our fair value is adjusted to $1.72, based on 7x earnings multiple for shipping 18x for shipyard earnings based on FY06 earnings. On a PE basis, this works out to be 18.1x and 15.2x on FY05-06 earnings.
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Compiled by JOYCE KOH