The Straits Times / The Business Times News on Cosco

Cosco clinches first rig deal worth US$170m

Contract awarded by a unit of Norway-listed Sevan Marine

COSCO Corporation (Singapore) said yesterday that its subsidiary Cosco Shipyard Group has won a US$170 million contract from Sevan Drilling, a subsidiary of Norwegian-listed Sevan Marine.

Mr Ji: Contract is a vote of confidence in Cosco's technical competence and project management capabilities.

It is the first drilling rig contract the shipping group has won. Cosco Corp began to shift from bulk shipping and towards the shipyard business two years ago, when it bought a 51 per cent stake in Cosco Shipyard Group.

The two-phase Sevan contract is for a drilling unit based on the Sevan 650 design. The first phase, hull construction, is expected to be completed by the first quarter of 2008. Phase two involves assembling and outfitting the drilling unit.

The whole project is scheduled for delivery in the fourth quarter of 2008. The rig, with oil storage capacity of 150,000 barrels, will be able to drill wells up to 12,200 metres deep at water depths of up to 3,800 metres. It will be deployed by Petrobras in the Gulf of Mexico.

In a report, DBS Vickers analyst Janice Chua said: 'This is a breakthrough for the Cosco group - its first in winning a drilling rig.' DBS Vickers has a 'buy' rating on Cosco and a 12-month target of S$3.45, expecting more offshore contract wins to provide catalysts for the stock.

The DBS Vickers report said the Sevan contract will raise Cosco's order book 18 per cent to US$1.1 billion, and Cosco's new contract wins 26 per cent to US$805 million, in just the first three months of the year.

Business shift: Cosco Corp began to move from bulk shipping and towards the shipyard business two years ago.

Phillip Securities Research has a 'buy' rating on Cosco and a fair value of S$3.32, up from S$3.08 previously. 'The significance of the customer, who is a listed Norwegian company, gives testament to the high engineering and technical skills of the group,' said Phillip Securities in a report.

Phillip Securities also raised its revenue forecast for FY07 and FY08 by 11 per cent and 10 per cent respectively to factor in the new order, implying a CAGR of 50 per cent of revenue over FY05 to FY08.

'This contract is a vote of confidence in our technical competence and project management capabilities,' said Ji Hai Sheng, vice-chairman and president of Cosco Corp, and vice-chairman of Cosco Shipyard Group.

Cosco Corp last month posted 28 per cent growth in annual net profit to S$205.4 million, marking a third straight year of record earnings. The shiprepair business grew 45 per cent, contributing 85 per cent of total revenue. Cosco Corp is the shiprepair and marine engineering arm of China Ocean Shipping (Group) Co, China's biggest shipping company.

Cosco Corp shares closed 12 cents up at S$2.81 yesterday. The new contract is not expected to have a significant impact on the company's net tangible assets and earnings per share in 2007.