Cosco Corporation Ltd: FY2010 Results

- FY2010 revenue of S$3,861.4m, net profit of S$248.8m
- Revenue and net profit beat expectations
- Maintain buy and fair value at S$2.68

FY2010 results
Cosco reported FY2010 revenue of S$3,861.4m (+33% y-y) and net profit of S$248.8m (+126% y-y). The revenue was 11.8% higher than our estimate of US$3,454.2m while the net profit was 18.0% better than our forecast of US$210.9m. The better-than-expected performance was due to greater turnover from shipbuiilding and marine engineering projects that offset the decline in dry bulk shipping business.

Our views on the results
Cosco reported strong results and we are confident on its performance for this year. Indeed, we expect earnings of S$300.3m in FY2011E. Moreover, it remains focused on cost management. For instance, it aims to maintain staff costs at the same level as FY2010 by decreasing the amount of contract labour to offset the impact from the increase in wages. It is also optimistic on the amount of new orders for dry bulk vessels, and offshore marine vessels such as semi-submersible rigs and floating production, storage and offloading (FPSO) vessels. It has a target of 40% of its order book from offshore marine projects. Although there is a drop in short-term dry bulk shipping rates as reflected in the Baltic Dry Index (BDI), it believes that this is a good time to order new dry bulk vessels. Finally, by paying a higher dividend of S$0.04 per ordinary share for FY2010 compared to S$0.03 for FY2009, it shows that it is optimistic about the future.

Maintain buy recommendation and fair value at S$2.68
Cosco constantly strives to improve its productivity by reducing the time required to build dry bulk vessels and offshore marine vessels. Similarly, it has been securing new orders for dry bulk vessels and offshore marine vessels since 2010. We believe that orders will improve further in 2011 as it benefits from the global economic recovery. In fact, we project orders of S$3.8 billion in 2011. Therefore, we maintain our buy recommendation and fair value at S$2.68, which is 20 times FY2011E earnings per share.

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