Is Cosco’s $11.25b orderbook a double-edged sword?

It’s brimming with low-value contracts, for starters.

Cosco’s hefty US$8b, or about $11.2b, orderbook may do the company more harm than good.

According to a report by DBS, the shipbuilding contracts in Cosco’s orderbook are of low value. Meanwhile, the company’s offshore segment is still grappling with a steep learning curve in with its diversified product range.

Worse, Cosco’s O&G customers are delaying rig deliveries in view of the unimpressive chartering market and could potentially encounter more cancellations in a prolonged downturn.

Concerns are also lingering over the drillship and cylindrical rig sagas. With the flagging market sentiment and supply flood of new drilling rigs, Cosco will likely have trouble closing the sale of the cancelled drillship unit.

DBS further notes that Cosco’s whopping $570m net loss in FY15 wiped out almost 40% of its book value. Moreover, the elimination of the privatisation angle in the near term limits re-rating catalysts for the company.