Higher risk of order cancellations, slower shipbuilding demand
By LYNETTE KHOO 15 October 2008
The sell- down in shares of Cosco Corp on credit concerns has left one of the last two non-penny S-shares on the brink of going under the one dollar mark.
Some dealers attributed the fall to a downgrade in target price by Credit Suisse to 55 cents from $1.20, with an ‘underperform’ rating.
Yesterday, Cosco shares held up above $1.20 in the morning trading session before plummeting in the afternoon session to close at a two-year low of $1, which was a 16.7 per cent slump from Monday. It was the second most actively traded stock with 78.42 million shares changing hands.
Credit Suisse analyst Haider Ali said in a report published yesterday that he expects Cosco shares to drift lower towards its estimated trough value of 55 cents on concerns over shipbuilding demand, risk of order cancellations and delivery delays.
‘New contracts wins for Cosco Corp have already slowed dramatically; now the question is if they can deliver as per original plan,’ Mr Ali said. ‘Inadequate disclosure on dry bulk newbuild schedule and no announcements on successful delivery of dry bulk vessel to customer to-date (against 10 planned deliveries in 2008 and 41 vessels in 2009) heighten our concerns on execution risk.’
Analysts pointed out that the current credit condition could squeeze demand for new shipbuilding and raise the risk of order cancellations by clients that are held back by tighter credit lines.
‘People are wary of shipbuilding companies in general, given the credit crunch,’ said Macquarie Securities analyst Ashwin Sanketh.
‘Financing shipbuilding is going to be a challenge now,’ he added. ‘All yards are seeing some order cancellation, whether it is Korean or Chinese. From that point of view, Cosco is no different from the other shipbuilding yards.’
Recent news of Cosco’s Norwegian client MPF filing for bankruptcy also stoked more fears among investors who were already concerned about weak orderbook growth and rising competition, analysts said.
Any pull-out of contract would leave Cosco with only 10-30 per cent of the value of the contract that was received as deposit, Mr Sanketh estimated.
Cosco declined to comment on these concerns yesterday.
Other shipbuilding stocks closed mixed yesterday. Sembcorp Marine fell 2.1 per cent to $2.35, Yangzijiang Shipbuilding was unchanged at 33 cents while Keppel Corp gained 2.3 per cent to $6.10.
Mr Ali of Credit Suisse yesterday raised its rating on KepCorp and SembMarine to ‘neutral’ from ‘underperform’ on significantly improved risk-reward profile, but trimmed its target prices for these stocks to $5.96 from $7 and to $2.40 from $2.70 respectively.
He also lifted his call for Yangzijiang to ‘neutral’ from ‘underperform’ and cut the target price to 33 cents from 44 cents in view of weakening visibility and sector fundamentals.
Analyst report paints cloudy outlook for Chinese shipbuilder
By Yang Huiwen 15 October 2008
COSCO Corp shares tumbled more than 16 per cent yesterday as investors dumped the stock over concerns that the Chinese shipbuilder would struggle to deliver orders.
Its shares reversed early morning gains after a Credit Suisse analyst report painted a cloudy outlook and slashed its target price by 54 per cent, from $1.20 to 55 cents.
Investors took the cue and rushed out of the stock, sending it down 20 cents, or 16.67 per cent, to $1 - its lowest in more than five years.
Volume soared with more than 78.4 million shares traded compared with 35.1 million on Monday and almost three times the average daily volume this month.
Cosco’s drastic fall could also have been exacerbated by a deeper plunge in the Baltic Dry Index (BDI), a key indicator measuring commodity shipping costs.
The measure slumped 11 per cent to 1,976 yesterday, its sixth straight day in the red. It has lost more than 75 per cent of its value this year.
Cosco shares were already bashed last week, hit by the weakening BDI and news that a client had filed for bankruptcy, although it had paid the firm most of the US$120 million (S$175 million) for a vessel it ordered in 2006.
But the key blow came from the Credit Suisse analysis yesterday.
Even though the stock has lost over 30 per cent in value over the past month, ‘visibility on its earnings and cash flows continues to deteriorate’, said analyst Haider Ali, in part because new shipbuilding demand ‘is unlikely to recover in the current environment’.
An increasing risk that customers will cancel existing orders is also dampening the outlook.
‘While potentially lower materials prices may provide a partial relief to shipbuilders, we remain concerned that continued delivery delays may result in this relief proving to be temporary at best,’ said the report.
Cosco has made no announcements on any successful delivery of dry bulk vessels to customers. That indicates it may struggle to achieve its plans to make 10 deliveries this year and 41 vessels, said Mr Ali.
New contract wins for Cosco have already ‘slowed dramatically and now the question is if they can deliver as per original plan’, he said, adding that there is also ‘inadequate disclosure’ on the firm’s dry bulk new-build delivery schedule.
DBS Vickers last week said it had already factored in a 30 per cent decline in charter rates, and this will affect a few of Cosco’s vessels whose contracts are due for renewal at the end of this year.
Of 15 analysts who have issued reports on Cosco since August, five have ‘sell’ calls, three recommend a ‘hold’, while seven have ‘buy’ calls.
Rig-builder Sembcorp Marine, which has a stake in Cosco, gained up to 33 cents in morning trade but closed five cents down at $2.35.
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Cosco Shares Sink on Analyst Downgrade
Higher risk of order cancellations, slower shipbuilding demand
By LYNETTE KHOO
15 October 2008
The sell- down in shares of Cosco Corp on credit concerns has left one of the last two non-penny S-shares on the brink of going under the one dollar mark.
Some dealers attributed the fall to a downgrade in target price by Credit Suisse to 55 cents from $1.20, with an ‘underperform’ rating.
Yesterday, Cosco shares held up above $1.20 in the morning trading session before plummeting in the afternoon session to close at a two-year low of $1, which was a 16.7 per cent slump from Monday. It was the second most actively traded stock with 78.42 million shares changing hands.
Credit Suisse analyst Haider Ali said in a report published yesterday that he expects Cosco shares to drift lower towards its estimated trough value of 55 cents on concerns over shipbuilding demand, risk of order cancellations and delivery delays.
‘New contracts wins for Cosco Corp have already slowed dramatically; now the question is if they can deliver as per original plan,’ Mr Ali said. ‘Inadequate disclosure on dry bulk newbuild schedule and no announcements on successful delivery of dry bulk vessel to customer to-date (against 10 planned deliveries in 2008 and 41 vessels in 2009) heighten our concerns on execution risk.’
Analysts pointed out that the current credit condition could squeeze demand for new shipbuilding and raise the risk of order cancellations by clients that are held back by tighter credit lines.
‘People are wary of shipbuilding companies in general, given the credit crunch,’ said Macquarie Securities analyst Ashwin Sanketh.
‘Financing shipbuilding is going to be a challenge now,’ he added. ‘All yards are seeing some order cancellation, whether it is Korean or Chinese. From that point of view, Cosco is no different from the other shipbuilding yards.’
Recent news of Cosco’s Norwegian client MPF filing for bankruptcy also stoked more fears among investors who were already concerned about weak orderbook growth and rising competition, analysts said.
Any pull-out of contract would leave Cosco with only 10-30 per cent of the value of the contract that was received as deposit, Mr Sanketh estimated.
Cosco declined to comment on these concerns yesterday.
Other shipbuilding stocks closed mixed yesterday. Sembcorp Marine fell 2.1 per cent to $2.35, Yangzijiang Shipbuilding was unchanged at 33 cents while Keppel Corp gained 2.3 per cent to $6.10.
Mr Ali of Credit Suisse yesterday raised its rating on KepCorp and SembMarine to ‘neutral’ from ‘underperform’ on significantly improved risk-reward profile, but trimmed its target prices for these stocks to $5.96 from $7 and to $2.40 from $2.70 respectively.
He also lifted his call for Yangzijiang to ‘neutral’ from ‘underperform’ and cut the target price to 33 cents from 44 cents in view of weakening visibility and sector fundamentals.
Cosco Shares Plunge as Investors Flee
Analyst report paints cloudy outlook for Chinese shipbuilder
By Yang Huiwen
15 October 2008
COSCO Corp shares tumbled more than 16 per cent yesterday as investors dumped the stock over concerns that the Chinese shipbuilder would struggle to deliver orders.
Its shares reversed early morning gains after a Credit Suisse analyst report painted a cloudy outlook and slashed its target price by 54 per cent, from $1.20 to 55 cents.
Investors took the cue and rushed out of the stock, sending it down 20 cents, or 16.67 per cent, to $1 - its lowest in more than five years.
Volume soared with more than 78.4 million shares traded compared with 35.1 million on Monday and almost three times the average daily volume this month.
Cosco’s drastic fall could also have been exacerbated by a deeper plunge in the Baltic Dry Index (BDI), a key indicator measuring commodity shipping costs.
The measure slumped 11 per cent to 1,976 yesterday, its sixth straight day in the red. It has lost more than 75 per cent of its value this year.
Cosco shares were already bashed last week, hit by the weakening BDI and news that a client had filed for bankruptcy, although it had paid the firm most of the US$120 million (S$175 million) for a vessel it ordered in 2006.
But the key blow came from the Credit Suisse analysis yesterday.
Even though the stock has lost over 30 per cent in value over the past month, ‘visibility on its earnings and cash flows continues to deteriorate’, said analyst Haider Ali, in part because new shipbuilding demand ‘is unlikely to recover in the current environment’.
An increasing risk that customers will cancel existing orders is also dampening the outlook.
‘While potentially lower materials prices may provide a partial relief to shipbuilders, we remain concerned that continued delivery delays may result in this relief proving to be temporary at best,’ said the report.
Cosco has made no announcements on any successful delivery of dry bulk vessels to customers. That indicates it may struggle to achieve its plans to make 10 deliveries this year and 41 vessels, said Mr Ali.
New contract wins for Cosco have already ‘slowed dramatically and now the question is if they can deliver as per original plan’, he said, adding that there is also ‘inadequate disclosure’ on the firm’s dry bulk new-build delivery schedule.
DBS Vickers last week said it had already factored in a 30 per cent decline in charter rates, and this will affect a few of Cosco’s vessels whose contracts are due for renewal at the end of this year.
Of 15 analysts who have issued reports on Cosco since August, five have ‘sell’ calls, three recommend a ‘hold’, while seven have ‘buy’ calls.
Rig-builder Sembcorp Marine, which has a stake in Cosco, gained up to 33 cents in morning trade but closed five cents down at $2.35.
http://www.mediafire.com/file/ch5kzwnkjzy/081015 Cosco Shares Plunge as Investors Flee.pdf
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