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COSCO Corp: 1H07 Result Makes Outlook Remain Positive(Reiterate Outperform - Target SG$5.95)

Monday, August 6, 2007

5814

COSCO Corp

Recommendation on 6 August 2007
Recommendation	BUY
Price on Recommendation Date	$4.960
PE Ratio	$25.8
Interest rates	0.800
Suggested purchase price	$4.960
Target Price	$5.950

Weekly Special - 1836 Stella International

Investment Highlights

The strong 1H07 result of COSCO delivers signal to investors that the short-term outlook is sustainable. The 1H revenue increased by 63% yr-on-yr to SG$868 mil., while net profit reached record high of SG$122.3 mil., or 38% higher than the same period of 2006. The stellar performance was driven by stream of new contracts. Shipping repair, which once contributed 92.0% to revenue in 2Q06, only contributed 49% in 2Q07, while ship building and marine engineering accounted for another 41% of revenue.

COSCO Corp. has recently secured five new contracts through its 51% stake in Cosco Shipyard Group (CSG), which are valued SG$853 mil. (US$563 mil.) in total. The new contracts bring the order book size to SG$4.90 bil. year-to-date, which represents 4.0x of FY06’s revenue.

CSG has entered into building and conversion contracts for : (1) 8 new bulk carriers of 57,000 dwts each for US$313 mil., and (2) 10 conversions from VLCC (“Very Large Crude Carrier”) to VLOC (“Very Large Ore Carrier”) for US$250 mil. with international customers. Deliveries of these vessels will be made between March 2008 and 2010.

Although the surge of price in the past month pushed the counter’s valuation with 25.8x FY07 EPS, higher than the industry average PER of 20x, the premium reflects its leading position and economies of scale. We reiterate Outperforming with target price upgraded to SG$5.95 from the previous target SG$5.58.

Financial Highlights

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COSCO Corp: 1H07 Result Makes Outlook Remain Positive(Reiterate Outperform - Target SG$5.95)

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