With reference to the half-year financial result of Cosco reported on 4th Aug 08, following is a brief summary of the result.
1. Turnover for 1H FY08 up 103% to S$1.764b as compared with 1H FY07 of S$868.1m.
2. Cost of Sales for 1H FY08 up 112% to S$1.319b as compared with 1H FY07 of S$623.4m.
3. Gross Profit for 1H FY08 up 82% to S$446.1m as compared with 1H FY07 of S$244.7m.
4. Net profit for 1H FY08 up 78% to S$323.5m as compared with 1H FY07 of S$182m.
5. EPS for 1H FY08 up 73% to 9.50 cents as compared with 1H FY07 of 5.50 cents.
6. NAV for 1H FY08 is 18.67 cents as compared with 1H FY07 of 20.23 cents.
7. Order book of US$7.4b as of 30th Jun 08.
Cosco reported strong turnover mainly due to its high-value offshore marine engineering and ship conversion projects, as well as contribution from the ship building segment. Its ship repair, ship building & marine engineering business remained the largest revenue contributor for the company turnover. Even though its cost of sales also increased but the strong turnover is enough to offset those and produced a 82% increase for the gross profit. The strong order book also suggested that the company is able to withstand the rising inflation and yet still able to produce good result in the remaining half of the year. Below is the list of analysts view on the strong set of result.
1. DBSV downgraded to hold, cut target price to $3.26 from $4.00.
2. Philip Securities maintains buy rating but cut target price to $3.44 from $6.70.
3. Credit Suisse downgraded to underperform, cut target price from $4.40 to $2.25
4. JP Morgan downgraded to neutral, cut target price from $3.80 to 3.00
Analysts cutting fair price mainly due to concern on rising in material costs, weakening of US$ and with a cloudy US economy it could getting lesser contracts for the remaining of the year.
The price of Cosco took a tumble on 7th Aug 08 when there was sudden announcement on the retirement of the President and Vice-Chairman, Mr Ji Hai Sheng. It broke the March 08 low of $2.80 level and even the $2.50 support level could not hold the selling pressure. Price is not supporting at its Feb 07 low of $2.32. Investors were concern on the change of management. With that DBSV downgraded Cosco to fully valued from hold, further cutting down its target price to $2.46 from $3.25 based on 8x PE value.
Assuming Cosco is able to maintain its 1H FY08 performance for 2H FY08, the EPS for FY08 would conservatively value at 19 cents. At current price of $2.44 ( 8th Aug 08 closing price ), this translates to 12.8x FY08 PE. Personally, with a cloudy US economy and rising in steel prices, Cosco could be fairly valued at between 15x - 20x FY08 PE for FY08 which translates to $2.85 - $3.80 (based on 19 cents FY08 EPS ). Below is a list of valuation of Cosco based on FY08 EPS of 19 cents.
20x PE -- $3.80
19x PE -- $3.61
18x PE -- $3.42
17x PE -- $3.23
16x PE -- $3.04
15x PE -- $2.85
14x PE -- $2.66
13x PE -- $2.47
12x PE -- $2.28
11x PE -- $2.09
10x PE -- $1.90
9x PE -- $1.71
8x PE -- $1.52
7x PE -- $1.33
6x PE -- $1.14
5x PE -- $0.95
Despite the effort from the management to clarify the sudden retirement of Mr Ji Hai Sheng, Cosco share price has shown little reaction to it and investors who are still bullish and confident over Cosco's future perhaps is a good opportunity to buy when valuation hit 10x or below FY08 PE at $1.90. At $1.90, investors should have a good margin of safety based on the fact that Cosco has a strong order books till year 2011 at least.
