Published October 31, 2008

Cosco Corp's Q3 net up 17% as sales surge 81%

Gross profit margins fall; factors cited include higher material costs

By VINCENT WEE
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COSCO Corp (Singapore) posted a 17 per cent year-on-year rise in third-quarter net profit to $113.9 million as turnover surged 81 per cent to $987.7 million.

Boost: Third quarter turnover was buoyed by the ship repair, ship building and marine engineering segments

Q3 turnover was boosted by the ship repair, ship building and marine engineering sectors in particular, with this segment growing 86.5 per cent to $909.9 million.

The quarter's bottom line - which translated to earnings per share of 5.09 cents, up from 4.37 cents - was also helped by net 'other gains', which rose to $56.45 million from $21.42 million, with a large chunk coming from sale of scrap metals, interest income and foreign exchange gain.

Despite the 81 per cent revenue surge, the group's Q3 gross profit rose just 10 per cent to $201.9 million as higher material costs and lower margin from the new ship building business eroded its gross profit margin to 20.4 per cent from 33.5 per cent.

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Click here for Cosco's financial results

Dry bulk shipping turnover rose 36 per cent to $72.5 million for the third quarter, lifted by more favourable charter rates renewed earlier in the year. The 'shipping agency and others' segment saw turnover fall 10.2 per cent to $5.3 million due mainly to lower agency commission.

Turnover for the first nine months surged to $2.75 billion, outstripping the $2.3 billion seen for the whole of FY2007.

Nine-month net profit rose 48 per cent $326.5 million year-on-year, boosted by growth across the group's major business segments. The bottom line was also helped by a 64 per cent jump in net 'other gains' to $124.9 million, with the bulk coming from the sale of scrap metals and interest income.

Cosco said initial advance payments have been received for all its its respective customers for its current order book of US$8.1 billion for progressive delivery up to 2011, and 'save as previously announced on April 9, there has so far been no cancellation of order by any customer'. The China-based ship and rig-builder also reiterated that it has collected the first three of four instalments for a floating, production, drilling, storage and off-loading (FPDSO) vessel contracted by MPF Corp, which has sought bankruptcy protection in the United States and Bermuda.

'As the group has to date not received any indication from MPF that it is unwilling or unable to make payment of the last instalment, the group will continue to perform its obligations under the contract. Should MPF not make its final payment, the group has the right under the contract to sell the vessel at a public or private sale. Based on current market prices, proceeds from the sale of the vessel would be more than sufficient to cover the sum of the outstanding instalment,' Cosco said.

Cosco said 'the group expects operating environment to be challenging in the near to medium term given the uncertain global economic climate'.

Separately, the company announced yesterday that its 51 per cent owned Cosco Shipyard Group has won new shipbuilding and offshore contracts worth one billion yuan (S$220.2 million).

Cosco shares closed 9.5 cents higher at 75.5 cents yesterday.