Uh-oh! Coscos books another S$74.7m -worth of loss provisions in 4Q

The amount which is as huge as the previous 9-month provision of S$75.7m has analysts worried.

Here's from CIMB analyst Lim Siaw Kee:

Our warning of more provisions for project losses came true. A further S$74.7m provision was made in 4Q (9M: S$75.7m) for higher cost inputs (6-10% yoy rise in labour costs and pricier steel) as well as “learning curve” costs. We believe the “learning curve” costs were quite significant as Cosco undertook new products (drillship, jack-up and tender rigs). With another new product (a pipelay vessel) to be built in 2012, more provisions could be inevitable.

One consolation was that none of the divisions lost money in 4Q. Additionally, a final and total DPS of 3Scts was declared.

Shipbuilding faces daunting prospects. We believe margins for shipbuilding could succumb to rising costs and lower contract values, as orders from 2009-10 are now executed. The shipbuilding order pipeline remains foggy given overcapacity in all segments.

On the other hand, Cosco has developed and marketed its proprietary containership design (focus on 5,000 TEU) and management is sanguine that it can clinch a few such orders this year.