Cosco's plummeting profit fears overstated

Silverlining seen at US$1b worth of new orders in 1H12.

COSCO Corp Singapore (COSCO) reported a 2% YoY decrease in revenue to S$975.3m and a 13% fall in net profit to S$27.6m in 2Q12.

According to OCBC Investment Research, the slight drop in turnover was due to lower contributions from
shipbuilding which more than offset the growth in shiprepair and marine engineering.

Gross margin, however, increased from 7.5% in 2Q11 and 10% in 1Q12 to 12% in 2Q12.

"We note that unlike previous quarters which saw provision of losses for certain contracts (due to cost overruns), COSCO saw a S$15.9m reversal of expected losses that were recognized earlier. The group’s order book stood at US$5.9b as at 30 Jun 2012 after receiving US$1b of new orders in 1H12 (mainly offshore)," it said.

"Meanwhile, current operating conditions and outlook of the Chinese shipbuilding sector remains
challenging with minimal new orders and weak vessel values," it added.