CIMB remains skeptical of Cosco Corp.’s ability to execute offshore projects profitably. It keeps its forecasts unchanged after the latest US$200 million ($247 million) semi-sub accommodation rig contract win as it is within its 2012 order-win assumption of US$2 billion.
“Cosco’s order momentum has not abated with US$1.4 billion of orders secured year-to-date, but profitability from these contracts remains questionable.” It notes the two semi-sub accommodation rig orders Cosco has won this year are priced 30%-35% lower than similar units being built by SembMarine and Keppel for more established players.
“Customers’ specifications and equipment could be the main variances but so are lower margins.” It adds, apart from execution risk, Cosco also faces cancellation risks as customers may not be able to secure financing, with most of its offshore customers venture capitalists, private equity funds or owners without established operating records. “Not time to switch camp. Stick with established Singapore rig builders.” It keeps an Underperform call with $0.85 target. The stock is up 1.1% at $0.960.
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