Cosco net profit soared to $249mn in FY2010

4Q 2010 net earnings surged 431% y-o-y and 70% q-o-q to $93.6 million.

According to DBS, high earnings was fuelled by improved margin recovery from shipbuilding, higher-than expected offshore revenue, cost savings from preferential tax rate and tightened cost management. This brings FY10 net profit to $249 million.

Adding back the cost overrun provision of S$24m for the heavy lift, car carrier and wind turbine installation vessel, Cosco’s bottomline would have been stronger at over S$117m, raising overall margins by 2.5ppt. In particular, gross margin for bulk carriers is estimated to have lifted to 11-12% from c.10% in 3Q due to efficiency gains, cuts in staff headcount and lower steel cost. DBS expects margin to be sustainable at 10% in FY11, as efficiency gains offset rising production costs.

Offshore contribution to revenue has increased from 15% in FY09 to 24% in FY10 and is expected to rise further to 40% by 2012 assuming offshore orders of US$2bn this year. Cosco’s first mover advantage into offshore and relatively more proven track record puts it in a favourable position among the Chinese yards to benefit from the return of offshore contracts.