COSCO Corporation (S) (COS (S)) has released its 9M07 results. 9M07 earnings increased by 37.5% to S$220.1m while 3Q07 earnings increased by 36.7%. However, after stripping out gains from vessel sales in FY06, 9M07 and 3Q07 earnings increased by 63% and 87% respectively. Our current forecasts factor in full year growth of 55%.
COSCO Shipyard Group
COSCO Shipyard Group’s (CSG) revenue for 9M07 increased by 78.3% to S$1.3b. While revenue growth was below our expectations, earnings increased by about 73%, exceeding our growth forecasts of 56%. This was due to a significantly higher proportion of conversion projects, which offer higher margins as compared to offshore and new building projects.
Dry bulk shipping & shipping agency
In spite of operating a 15% smaller dry bulk fleet, COS (S)’s dry bulk shipping and shipping agency revenue for 9M07 increased by 13% yoy due to strong freight rates in the dry bulk sector. Based on the latest results, we expect
COS (S)’s dry bulk business to perform in line with expectations for FY07.
Only foreign exchange hedging, no trading or speculation Both Mr. Ji Hai Sheng, President of COS (S) and Mr. Teo Chuan Teck, COS (S)’s Financial Controller have clarified that COS (S) does not undertake any foreign exchange trading or speculation. As such, they do not anticipate that COS (S) will be faced with large foreign exchange losses.
QDII fund interest and possible A-share listing: Re-rating imminent Mr. Ji Hai Sheng indicated that COS (S) has been approached by and have been approaching QDII funds in the past month. In addition to this, he has openly stated that COS (S) is actively looking at listing on the A-share market. COS (S) could potentially be re-rated as it is one of the few pedigree Sshares in Singapore which is also a Chinese state-owned company.
Maintain BUY. Target price raised to S$8.60. We continue to like COS (S)
given its exceptional order flow, aggressive expansion plans and strong
earnings momentum. We maintain our BUY recommendation and raise our
target price to S$8.60 based on our sum-of-the-parts valuation. We have
also raised our earnings forecasts for CSG by 5% to 10%.
