COSCO Shipping International (Singapore) Co.(formerly: COSCO Corporation (Singapore))

May 7, 2011
Shipyard ops help push Cosco's Q1 profits up 17%
By Francis Chan , COMPANIES CORRESPONDENT

PROFITS at China-based shipbuilder Cosco Corp rose 17 per cent to $37.1 million in the first quarter of this year, after it achieved higher revenue from its shipyard operations.

Group turnover grew by 21 per cent to $1.01 billion despite lower contributions from its dry bulk shipping business for the period ending March 31.

Earnings per share rose to 1.66 cents from 1.42 cents previously, while net asset value rose from 53.53 cents to 54.65 cents over the same period.

As of the end of the first quarter, the group's order book stood at US$5.9 billion (S$7.3 billion) with progressive deliveries up to 2013, subject to revision from any new orders or cancellations, said Cosco yesterday in a Singapore Exchange (SGX) filing.

New orders received within the same period comprised three special-purpose carriers and two units of self-erecting tender drilling rigs.

These include the ones received on March 24 by Cosco's Nantong shipyard, which signed a letter of intent (LOI) with Sevan Drilling Rig V and Sevan Drilling Rig VI to produce two turn-key engineering, procurement and construction, or EPC, contracts for the delivery of two drilling units.

These are expected to take place in the fourth quarter of 2013 and second quarter of 2014 respectively.

The LOI has also granted options for two additional drilling units.

So far, the group has delivered seven dry bulk carriers in the first quarter.

Of these, Cosco Dalian shipyard delivered three bulk carriers while the Cosco Zhoushan and Cosco Guangdong shipyards delivered two bulk carriers each.

Cosco said it will continue to focus on deliveries while it upgrades its shipyard capabilities and efficiencies, as well as control costs.

The group said it maintains a cautious outlook for this year as 'the global economic recovery is uneven with new uncertainties from the unrest in the Middle East and the recent earthquake and tsunami disaster with nuclear scare in Japan'.

'On an upbeat note, the offshore and marine industry is experiencing an upcycle, driven by higher price of oil, with more demand for oil rigs and other specialised support vessels,' said Cosco in its filing with the SGX.

Latest figures from the International Monetary Fund indicate that China is projected to grow by 9.6 per cent this year, but higher prices of raw materials, including steel, may hit operating margins of the group's shipyard operations.

Cosco shares closed 0.45 per cent lower at $2.19 yesterday.

(Not Vested)

Business Times - 24 May 2011

Cosco (S) tanks as China audit flags parent's breach

But Singapore subsidiary says it was not cited in the China report

By LYNN KAN

(SINGAPORE) Jitters over the corporate governance standards of S-chips have surfaced once more, this time sparked by an audit report by the Chinese National Audit Office (NAO) about the state of affairs in Chinese state-owned enterprises (SOEs).

The NAO faulted 17 Chinese SOEs, including Cosco (S)'s parent company, for financial irregularities in a report released last Friday.

The market reaction was swift and adverse, with the stock of Cosco Corporation (S) falling prey, prompting Cosco (S) to issue an after-market clarification.

By 3pm yesterday, Cosco (S) shares were down by a sharp 5.9 per cent to $1.91. It ended the day at $1.89, a full 14 cents or 6.9 per cent down from the previous day.

In a filing to SGX after the close of trading, Cosco (S)'s board said 'neither the company nor any of its subsidiaries has been cited as having committed any irregularities and disciplinary violations in the NAO report'.

NAO homed in on Cosco Group and nine affiliated companies, which made up 81 per cent of Cosco Group's total assets.

NAO reportedly found that in 2009, Cosco Group understated profits of 17.7 million yuan (S$3.4 million), which represented 1.27 per cent of total profit.

It is also said to have under-reported 273 million yuan of assets or 0.11 per cent of total assets, 4.7 million yuan of liabilities or 0.005 per cent of total liabilities.

It has since adjusted its accounting records and reports.

NAO said about 94 per cent or 735 cases of discovered irregularities were put right and 65 people punished by the end of March 2011.

The total extent of these 17 SOEs' under-reporting amounted to profits of 1.2 billion yuan, assets worth 2.9 billion yuan and liabilities of 2.5 billion yuan.

They are also said to have overstated 1.9 billion yuan of assets and 2.63 billion yuan of profits in 2009.

Cosco Group's financial mismanagement, overly complex bureaucracy and employee compensation issues were detailed in the NAO report.

For instance, between 2007 and 2009, Cosco Dalian is said to have used 1.07 billion yuan of loans meant to fund working capital to build a hotel. Cosco Dalian has since returned the loan.

In the same period, Cosco Group acquired and redid a golf course for 110.2 million yuan, which lost 7 million yuan a year. Cosco Group has been trying to cut losses through various measures and exit the venture.

Cosco Group was described by NAO as having as many as 11 layers of companies. Five tiers alone contained as many as 763 subsidiaries or 66.8 per cent of Cosco's total number of subsidiaries.

The NAO report prompted Cosco Group to streamline its management chain to nine tiers.

Also, the Cosco Group headquarters and its affiliates were said to have falsified invoices amounting 979,000 yuan and 16.9 million yuan, respectively, to pay out employee bonuses and allowances.

While this laundry list was by no means a depiction of what goes on at S-chip shipbuilder Yangzijiang, it was collateral damage nonethless.

Yangzijiang tanked 10 cents or 5.8 per cent to end yesterday at $1.62. It is neither an SOE nor was it named in the NAO report.

The market's reaction was startling given that many did not know how the practices of China Cosco Holdings impacted its Singaporean counterpart and that the NAO report was based on dated FY2009 accounts.

Yet, said a hedge fund manager, the selldown came from a 'better safe than sorry' mentality. 'It's sell first, think later,' he said.

What hastened Cosco (S)'s share price decline further was the already dour regional market sentiment yesterday as rating agencies Fitch and Standard & Poor flagged fresh fears about the European sovereign debt crisis.

'Given the environment today, everyone was more sensitive about the bad news on corporate governance,' he said.

Yangzijiang declined to comment on its pummelled share price.

However, one factor for the price weakness yesterday was that it was trading ex-dividend yesterday. Hence, about 4.5 cents of the 10-cent drop could be accounted for. The other 5.5 cent-drop for Yangzijiang could largely in line with overall market weakness.

Business Times - 03 Aug 2011

HOT STOCKS
Cosco plumbs 13-mth low after dismal results

Analysts downgrade stock on execution, cost concerns

By LYNN KAN

IT SEEMS that, for now, the bull run is over for Chinese shipbuilder Cosco Corporation.

The counter sank to a 13-month low, tanking 14 per cent in yesterday's trading session alone to S$1.455, on the back of dismal Q2 results and a less than inspiring performance by its new area of expertise in offshore building projects.

Its net profit had tanked 53.4 per cent to S$31.9 million from S$68.4 million a year ago. Cosco's earnings had come up about 57 per cent short of consensus expectations.

Analysts have moved to downgrade or revise their target price (TP) downwards on the stock, on concerns of deteriorating execution and cost overruns on their various business segments.

Citi has pulled its 'buy' call on the stock and now has a 'sell' on Cosco with a TP of S$1.50. It said Cosco 'failed to demonstrate its ability to capitalise on stronger than expected year-to-date order wins'.

Cosco's order book stands at US$7 billion as at June 30, 2011, with US$1.8 billion of it logged within H1 of 2011.

Analysts have also turned bearish on Cosco's gross margins.

Kim Eng analyst Rohan Suppiah said that gross margins had declined 11.1 per cent to 7.5 per cent, 'indicating that the improvement in execution has derailed'.

Phillip Securities analyst Nicholas Low did not think that Cosco's margin decline could be explained solely by weakness in the dry bulk shipping sector. Instead, it attributed margin weakness to its marine engineering projects - a new division for the traditional builder of bulkers.

DBS Vickers noted that gross margins for offshore engineering dropped from 15 per cent in Q2 2010 to 9 per cent this quarter.

This quarter, Cosco has made a S$7.9 million provision for foreseeable losses for heavy lift vessel projects. Its total expected loss provision for H1 was S$28.3 million.

In its Q2 financial statement, Cosco's management talked about expected higher costs as it scales a 'learning curve' in offshore projects.

CIMB analyst Lim Siew Khee said: 'We fear that a history of provisions for loss-making contracts in shipbuilding could repeat themselves in offshore as these provisions typically surface after projects have reached substantial completion.

'Given its lack of experience in turnkey offshore projects (including deepwater drillships, tender rigs and jack-up rigs), we expect margins to remain low as more 'new' projects are executed.'

If we look at Cosco's last decade history, it has significantly grown (~40 times) ship building/repair business by quickly learning the ship-building and taking low cost advantage. During the same time period, other high cost ship-builders (e.g Sembmarine & KeppFels, Korean companies) have shifted from ship-building business to marine-offshore business as they could not compete with upcoming chinese builders on cost.

Very likely same story will repeat @ Cosco for marine-offshore segment in next decade? Currently Cosco is investing in "learning" the rig-building and as we all know chinese are very quick in learning/copying. As of 2011 Dec, 14 outstanding contracts are of marine-offshore segment. It has become one of the largest players (in China) marine-offshore industry in just 2 years after company shifted its strategy to this new segment. Without any experience in marine-offshore segment, only way to get order is offering contract at significanlty lower price than non-chiense players. As company will gain experience, company should be able to command premium and hence improvement in margins.

However in next decade, Cosco has to face challenges of labour cost inflation in China & Renmbi appreciation.

If Cosco repeats past decade sucess of ship-building story for marine-offshore segment, what would happen to SembMarine & KeppFels? Is this the reason that recently Temasek has sold some (though small) stakes in SembMarine? Is Temasek seeing same head-wind for SembMarine & KeppFels as it had seen for Cosco in 2008/2009 (not remember exactly which year) when it sold entire stake in Cosco?

(17-03-2012, 07:55 PM)yogi Wrote: However in next decade, Cosco has to face challenges of labour cost inflation in China & Renmbi appreciation.

If Cosco repeats past decade sucess of ship-building story for marine-offshore segment, what would happen to SembMarine & KeppFels? Is this the reason that recently Temasek has sold some (though small) stakes in SembMarine? Is Temasek seeing same head-wind for SembMarine & KeppFels as it had seen for Cosco in 2008/2009 (not remember exactly which year) when it sold entire stake in Cosco?

I believe you have made a very sensible and relevant point! Keppel Corp and Semb Marine's success in rig-building was a relatively recent phenomenon and probably took place in the last 10 years or so once the rig boom started. No doubt they are both now market leaders but I fully agree the Chinese are very good at emulating and copying, and at a much lower cost base as well.

For companies like Cosco, it will be a matter of time before they step up the learning curve and start building rigs which are as complex, if not more, than both incumbents. This will be the turning point and yes I believe the rig-building industry will change permanently once China enters the fray.

Rig-Building is both capital intensive and requires very specific skills sets. Plus, it is contractual in nature which means revenues are not consistent and recurring. In the long-term, this may mean that investing in such companies is not a good proposition.

(Not Vested in any of the companies mentioned)

I believe YZJ is planning to invest RMB 4 billion (together with Qatar) in a JV yard to build rigs as well. Let's not forget the PPL Yard stake as well (pending legal outcome). With that being said, if I am not mistaken, don't SMM own a 30% stake in Cosco Shipyard Group ? So I think it can also ride on the offshore manufacturing boom in China.

(Not Vested in any of these companies)

Cosco fully expose to the risk in the current market.

1) Bulk carrier and container shipping are still facing the huge loss.
2) Ship building in marine sector are facing order cancellation.
3) New comer of ship building in offshore sector. Secure contract with relatively low cost which may underestimate the cost of sale of building a offshore vessel.

Not vested.

(18-03-2012, 03:11 PM)kng Wrote: Cosco fully expose to the risk in the current market.

1) Bulk carrier and container shipping are still facing the huge loss.
2) Ship building in marine sector are facing order cancellation.
3) New comer of ship building in offshore sector. Secure contract with relatively low cost which may underestimate the cost of sale of building a offshore vessel.

Not vested.

I think COSCO Sp is history. CIMC Raffles its the other half sister Co. is probably much favored by the parent to spear head offshore work. Plus Cosco Sp is taking on jobs at lower margin and with cancellation from clients mounting, I wont be surprise if the shares continue to fall. It shows the Chinese mgmt does not have the ability to turnaround operation and are using short term measure to survive.

Good thing Semb Marine sold off COSCO shares to cover its exchange lost. Otherwise, all that money would have gone to waste.

From the high of 8$ drop to 89cts... speaks a lot about Chinese SOE.

Waiting to get it at 20 to 30 cents ...Just wait patiently..it will come...

(02-09-2012, 01:36 AM)ValueBeliever Wrote:

(18-03-2012, 03:11 PM)kng Wrote: Cosco fully expose to the risk in the current market.

1) Bulk carrier and container shipping are still facing the huge loss.
2) Ship building in marine sector are facing order cancellation.
3) New comer of ship building in offshore sector. Secure contract with relatively low cost which may underestimate the cost of sale of building a offshore vessel.

Not vested.

I think COSCO Sp is history. CIMC Raffles its the other half sister Co. is probably much favored by the parent to spear head offshore work. Plus Cosco Sp is taking on jobs at lower margin and with cancellation from clients mounting, I wont be surprise if the shares continue to fall. It shows the Chinese mgmt does not have the ability to turnaround operation and are using short term measure to survive.

Good thing Semb Marine sold off COSCO shares to cover its exchange lost. Otherwise, all that money would have gone to waste.

From the high of 8$ drop to 89cts... speaks a lot about Chinese SOE.

Cosco did real badly, and in relative YZJ did much better.

STI up; Cosco Corp hits 4-year low

Singapore shares rose on Monday as positive data from the US instilled optimism and boosted investor confidence, while shares of Cosco Corp tumbled to their lowest in more than four years on disappointing earnings.

The Straits Times Index gained 0.4% to 3,383.25, while the MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.9%.

Shares of Cosco Corp, a unit of China's maritime conglomerate China Ocean Shipping (Group) Co, fell more than 6% to $0.815 after the company posted a 65% drop in its first-quarter net profit.

http://www.theedgesingapore.com/the-dail...r-low.html