- Sevan's stronger financials post-IPO eases potential default risk.
- Good track record and successful penetration into first tier operators raise Cosco's profile on the global stage.
- Expect strong price catalysts from robust offshore contract flows.
- One of our top picks for the year; Reiterate BUY with TP of S$3.16.
Sevan to strengthen balance sheet through IPO. Sevan Drilling has set its indicative price range and is scheduled to commence trading on Oslo Stock Exchange on 29th April. We believe the smooth progress of Sevan Drilling's listing will help Cosco to finalize its recent LOIs of 2 + 2 Sevan drilling units worth US1.05bn + US1.05bn. In addition, the successful listing should enhance Sevan Drilling's financial strength and ease potential default risk.
Building up first tier clientele – Seadrill, BW Offshore, Modec. Timely delivery of good quality FPSO and rigs as well as a slew of full turnkey projects from repeat customers have raised Cosco's profile in the global stage and opened its doors to compete with the more established local and Korean players. Recent secure of tender drilling rig orders from first tier operator, Seadrill, is a strong accolade to Cosco's offshore capability and evidence of its effort to diversify upwards into the first tier clientele. BW Offshore and Modec, the world's second and third largest FPSO operators, are Cosco's key FPSO conversion clients.
Order flow to catalyse share price. We believe Cosco's active enquiry received since 4Q10 will translate into firm orders in months ahead and generate a strong wave of re-rating to Cosco's share price. Potential orders include FPSOs, semi-sub rigs, and wind turbine installation vessels totaling over US$2bn. Maintain Buy with target price of S$3.16, based on blended FY11/12F PE and P/BV.
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