CoscoCorp - HSBC raises Cosco target; keeps at Underweight

Stock Name: CoscoCorp
Company Name: COSCO CORPORATION (S) LTD
Research House: HSBC

HSBC says Cosco (F83.SG) “a Morris Minor at Maserati prices.” Analyst Tarun Bhatnagar says Cosco faces steep learning curve on many fronts; company acknowledges efficiency an issue as it takes about 50% more time vs industry norm to build bulk carriers, and states its cost structure is uncompetitive, says Dow Jones. 



Bhatnagar says credit policy, orderbook management has been lax with some 16 cancellations, 48 delays through GFC, while current bulk carrier fleet likely to rise 60% in 2-3 years, may put freight rates under pressure, slow new orders. 

Adds, rigbuilding ambitions face hurdles near term after Macondo disaster, given oil firms unlikely to stray from established, experienced Singaporean, Korean yards. On top of this, says disproportionately high 30%-50% of pretax income from non-core items is a concern, as is series of senior-level departures witnessed in recent months. 

Raises target to $1.35 vs $0.65 on new orders, higher estimates, change in valuation methodology; on P/E, P/B ratios, “Cosco stands out as the most expensive of its peers but offering among the lowest ROEs and margins.”

Keeps Underweight. Shares +2.2% at $1.90.