COSCO Corporation (S)

Secures first new building contracts for shuttle tankers

COSCO Corporation (S) (COS (S)) has announced that it's 51% owned subsidiary COSCO Shipyard Group (CSG) has secured US$422m worth of building and conversion contracts.

First shuttle tanker newbuilding contracts for CSG
CSG's COSCO Nantong will be undertaking the construction of two new shuttle tankers for US$171.6m. These contracts are significant as they are CSG's first tanker new building contracts. In FY07, about 70% of CSG's orderbook was driven by dry bulk new builds. We see this diversification into other shipbuilding projects as a strong positive for COS (S). The two tankers are expected to be delivered in 2010 and 2011 hence we should see significant contributions to COS (S)'s earnings from these contracts only between FY09-11.

The usual conversion contracts
In addition to the new building contracts, CSG has secured US$250m worth of conversion contracts. These are the usual tanker to ore/ FPSO contracts they have been undertaking for the past two years and they are expected to be completed within FY08 and should contribute positively to FY08 earnings.

Maintain BUY. Target price raised to S$8.60. We continue to like COS (S) given its exceptional order flow, aggressive expansion plans and strong earnings momentum. Other potential earnings catalysts we could see are interests by QDII funds, future M&A activities as well as a Shanghai 'A' share listing. We maintain our BUY recommendation on COS (S) with a target price of S$8.60.