COSCO - Fully valued : DBS

FULLY VALUED: DBS Group ResearchJan 13, 2009 The Business Times

Cosco Corporation

Jan 12 close: S$0.815

DBS Group Research, Jan 12

COSCO Corporation announced that its subsidiary, Cosco (Zhoushan) Shipyard, has entered into an agreement with an Asian shipowner pertaining to order cancellation and rescheduling. Out of the four units of 57,000-deadweight-tonne bulk carriers placed in 2007, two will be cancelled. The delivery of the remaining two vessels will also be postponed.

The cancellations are estimated to be worth about US$90 million, representing only 1.2 per cent of Cosco's total orderbook of US$7 billion. We believe no major cost has been incurred, as the construction works for the two cancelled vessels have not commenced. As part of the agreement to cancel the orders, the shipowner has paid compensation to Cosco; no details were disclosed as to the amount paid.

We are retaining our forecast for Cosco as we have already imputed 40 per cent cancellations/delays in our earnings model. Maintain 'fully valued' and TP of S$0.76, based on 4 times its shipbuilding profits and 8 times its shiprepair profits.FULLY VALUED

Compiled by Lynette Khoo