Brokers' Take

Cosco Corporation
April 1 close: $1.62

02 April 2005
The Business Times

KIM ENG RESEARCH, April 1

WE are reiterating our 'buy' recommendation on Cosco Corp (CCS), with expectations that 1Q05 results, due on May 3, should double year-on-year to an estimated $23 million. CCS will recognise a full three-month contribution from its acquisition of 51 per cent of Cosco Shipyard Group (CSG).

Expansion at the group's China shipyards is on target, with two new berths at Zhoushan ready from this May, and the floating dock in Dalian at end-October. Capacity is being doubled with plans to expand both berthing and docking capacity at Dalian and Zhoushan yards. CCS holds significant stakes in China's top two shipyards (Cosco Nantong and Cosco Dalian). However, Zhoushan will be CCS's most significant venture once expansion plans are completed in 2007.

The group will charter out another two new vessels of 74,000 dwt this year upon delivery in 2QFY05, and another two vessels of 55,000 dwt in FY06. With eight renewals at higher rates completed in mid FY04, CCS's FY05 average charter rates will be higher than in FY04.

We have raised FY05/06 forecast by 3.5 per cent and 2.5 per cent to $121 million and $145 million respectively on higher shiprepair and robust shipping earnings. FY05/06 PEs are at 14 times and 12 times, with CAGR at 33 per cent. Our fair value is $1.92, based on blended multiple valuation of its ship-repair and shipping businesses.
BUY

Compiled by JOYCE KOH