COSCO Corp (Singapore) reported FY13 revenue of S$3,508.1m, representing a decline of 6.1% and formed 97.4% of our FY13 estimate. PATMI fared much worse, plunging 71.0% to S$30.6m and came in 17.0% below our full-year forecast (31.0% below Bloomberg consensus). The miss was partly due to a S$51.0m allowance made for expected losses recognised on construction contracts and a S$7.5m allowance for inventory write-down in 4Q13. We believe this reflects the execution risks still faced by COSCO. A first and final DPS of S$0.01 was declared, half that of FY12. Looking ahead, management highlighted that it is targeting to win US$2.2b of new orders in FY14, which we believe will be dominated by offshore marine orders, especially in the accommodation units segment. However, operating conditions are expected to remain challenging in 2014, since construction will commence for some of its shipbuilding contracts which were secured at low prices, coupled with continued learning curve for its offshore marine business. Hence we expect margin pressure to remain as a key concern. Maintain SELL and S$0.61 fair value estimate on COSCO.

Source: OCBC Research - 25 Feb 2014