Published October 15, 2008
Cosco shares sink on analyst downgrade
Higher risk of order cancellations, slower shipbuilding demand
By LYNETTE KHOO

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(SINGAPORE) 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.'
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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.