SG: MARKET PULSE: COSCO, Petra Foods (5 Jul 2013)

Stock Name: CoscoCorp
Company Name: COSCO CORPORATION (S) LTD

Research House: OCBC

Price Call: SELL

Target Price: 0.60

Stock Name: Petra
Company Name: PETRA FOODS LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 3.88

MARKET PULSE: COSCO, Petra Foods

5 Jul 2013

KEY IDEA COSCO Corp (Singapore): Don't catch a falling knife COSCO Corp (Singapore)'s share price has fallen by about 14% since our last update ("Downgrade to Sell - Missed Expectations", 6/5/2013) such that it is close to our previous S$0.76 FV. However, we do not think it is time to upgrade our call. The macro environment is looking increasingly gloomy. In China, an unexpected credit squeeze in the Chinese interbank market raised concerns over the fragility of the Chinese banking system. The surprise was that the PBOC took an unusually tough line by refusing to inject liquidity, at least for a few days. Should the credit conditions deteriorate, we think that COSCO, with its large debt burden, will be vulnerable. The group's net gearing climbed to 131% as of end 1Q13, from just 10% as of end FY10. We estimate about half of its existing debt (S$3.4b) would need to be refinanced within the next 12 months. Considering the risks, we cut our PBR peg to 1.0x (or 2 std dev below) and FV to S$0.60 (previously S$0.76). Maintain SELL. (Chia Jiunyang) MORE REPORTS Petra Foods: Fully valued ahead of 2Q results Since our sell call a month ago, Petra Foods' share price has fallen by as much as 17.9% before recovering to close about 7% lower. Although the outlook is still challenging for Petra - the World Bank recently trimmed its forecast for Indonesia's economic growth this year to 5.9% from 6.2% previously - we believe that the sell-offs are about done and Petra is fairly valued at this point. Ahead of its 2Q13 results release, we upgrade Petra to HOLD on valuation grounds, with an unchanged fair value estimate of S$3.88. Investors should also expect a larger than expected loss from the divested cocoa ingredients segment in 2Q13. (Lim Siyi)

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