The Straits Times / The Business Times News on Cosco

Ship-repair boom boosts Cosco Q2 profit

SHIPYARD and shipping group Cosco Corporation (Singapore) saw net profit for the second quarter this year rise 30 per cent to $51 million on the back of strong ship-repair demand and increasing number of higher-value contracts.

The mainboard-listed group posted a 26 per cent rise in revenue to $265.3 million for the three months ended June 30, 2006, due largely to a 30 per cent growth in ship-repair sales amounting to $223.8 million, or 84 per cent of group sales.

This resulted from an increase in the number of high-value contracts secured and completed during the quarter, as well as shipyard capacity upgrades, the group said in a statement to the Singapore Exchange.

Mr Ji: The high-yield ship-repair, conversion and offshore marine engineering projects secured in H1 FY2006 have already far exceeded those secured in the whole of FY2005

'The high-yield ship-repair, conversion and offshore marine engineering projects secured in the first six months of FY2006 have already far exceeded those secured in the whole of FY2005, underscoring the group capabilities in the highly specialised offshore business,' said Cosco Corp vice-chairman and president Ji Hai Sheng.

'The new facilities and capacity coming on stream will allow the group to further penetrate into the niche markets of high value offshore marine engineering work,' he said.

Mr Ji added that overall shipyard capacity would expand 6 per cent by year-end to 1.43 million deadweight tonnes.

Bulk shipping sales, although now accounting for only about 14 per cent of revenue, rose 8 per cent to $36.8 million due to the addition of two new vessels that joined the fleet in February and March this year. Shipping agency business accounted for the remaining 2 per cent.

For first-half 2006, the group posted a 36 per cent rise in net profit to $88.6 million on a 42 per cent rise in revenue to $532.9 million.

It also realised a one-time exceptional gain of $6 million from the sale of MV Cos Angel, one of four bulk ships slated for disposal.

The group has increasingly been transitioning from a near pure bulk shipping group to a strong focus on the shipyard business after acquiring a 51 per cent stake in the Cosco Shipyard Group (CSG) - China's largest shipyard group, with seven yards.

CSG group is winning a growing number of contracts for higher-value work like semi-submersible oil rig components and single-to-double hull and other specialised conversions.

This is largely due to the involvement of Singapore's SembCorp Marine, which holds a 30 per cent stake in CSG and which has partnered Cosco Dalian Shipyard for rig building.

Analysts have speculated that Cosco Corp could undergo a restructure in coming months that would involve an asset swap with its parent, effectively returning the bulk shipping business to the China Ocean Shipping Group (Cosco Group) in exchange for the remainder of the shipyard group.

Asked whether there is any plan to sell the bulk business, Mr Ji said: 'At the present time we do not have any concrete plans. We need to consider our future plans to make a proposal to our headquarters, but there is nothing concrete at the present time.'