Cosco shares up on US$1.05b rig contract deal: Update

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

Shares of Singapore-listed Chinese shipbuilder Cosco Corp (COSC.SI) surged 4.5% on Monday and its share price hit a one-month high after it signed an agreement to build two rigs worth $1.05 billion ($1.33 billion), prompting a broker to upgrade its rating.
At 9:58 a.m., shares of Cosco were 4% higher at $2.09 with over 12.6 million shares changing hands. 

However, they are down 2.8% since the start of the year, less than the Straits Times Index’s <.FTSTI> 4% decline.

Cosco said on Friday its subsidiary signed a letter of intent to build two rigs worth for Norway’s Sevan Group (SEVAN.OL).

This brings Cosco’s order wins so far this year to US$1.29 billion, half of CIMB Research’s estimate of US$2.5 billion for the whole of 2011.

“We believe the sizeable win will dispel investors’ fears over potential shipbuilding order cancellations,” said CIMB in a report.

The brokerage had raised its target for Cosco to neutral from trading sell and increased its target to $2.38 from $1.74.

However, it noted that steel prices may rise further due to reconstruction efforts after a massive earthquake struck Japan, which may weigh on Cosco’s earnings.

Analysts said the potential order for cylindrical drilling platform — which is similar to a semi-submersible rig — is a boost to the industry which had not seen orders for such rigs since the recent economic downturn.