Cosco Corporation - More delays but no surprise

Cosco has rescheduled the delivery of eight bulk carriers (by 4-9 months) to two European customers. Since end-2008, Cosco has had 34 vessels rescheduled for later deliveries and five cancellations. We have cut our earnings estimates by 9-12% for FY09-10 but raised by 2% for FY11, to reflect the deferment of some shipbuilding contracts from 2010 to 2011 and 2012. Maintain Underperform, albeit with a higher target price of S$0.69 (from S$0.39), still based on sum-of-the-parts valuation. Our higher target price is based on higher resale values for its bulk carriers as the second-hand market improves. We also peg a higher 7x CY10 P/E (previously 3x trough) for its ship repair and shipbuilding businesses, in line with its Chinese peers and an improved market risk appetite.

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