03-08-2011, 10:21 PM
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.'
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.'
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