- Maintain Outperform and target price of S$2.85. The rig that Cosco delivered to Sevan Marine in 2009 has been able to command competitive market day rates. Sevan Driller I, chartered to Petrobras, was 97% utilised in Feb 11. Our recent yard visit to Qidong confirmed that international customers are generally satisfied with the work of Cosco's Qidong yard and have been adding job scopes. We believe Cosco is the next best Chinese yard (after Dalian Shipbuilding) that could benefit from the offshore boom as Singapore yards get booked out, even as it wins over international drillers' confidence. No change to our US$2.5bn order-win assumption for 2011 (YTD wins of US$240m) and earnings estimates. Our target price remains based on 18x CY12 P/E, in line with upcycle valuations for Singapore rig builders. We see stock catalysts from contract wins and margin expansion.
- Made-in-China just as good. Sevan Driller I was delivered by Cosco in Nov 09 and boasted strong utilisation rates of 78% and 97% in Jan-Feb 11, commanding competitive charter rates of about US$445k/day. We believe it is a matter of time before Cosco clinches a third cylindrical rig, pending Sevan Marine's funding plans.
- Additional job scopes a seal of confidence. International customers are apparently happy with Cosco's work and have been adding job scopes. These include topside installation for GM4000, a well intervention semi-sub and the Octabuoy, a semi-sub oil production & storage unit, in addition to the original hull and deck construction.
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