Cosco says that the three rescheduled vessels will be delivered between August 2009 and October 2009 instead of the planned delivery of between June and December 2008. Noting that the time of the original delivery has is already way past, we find it discomforting that Cosco had not made indication of this rescheduling prior to this. Cosco says that the buyers are not pursuing late delivery claims. As for the cancellations, Cosco will refund the deposits paid for the ships.
Prior to this cancellation, interested parties transactions were worth S$579.8m. The cancellation effectively halves that exposure. We estimate Cosco’s orderbook at around US$6.5b Last week, Cosco also announced that it will delay the delivery of 8 bulk carriers (two 79,500 dwt and six 92,500 dwt bulk carriers) to two European ship owners by between 4-9 months.
We had been expecting even more delays and/or cancellations for Cosco, given the difficult market conditions for bulk carriers; however, these latest cancellations have exceeded our assumptions. While Cosco says that the latest cancellations are not expected to have a significant impact to earnings in 2009, they will surely be felt from FY10 onwards.
We are therefore cutting our net profit forecast for FY10 by 40% and FY11 by 50%, to S$154.3m and S$141.5m respectively. We are also factoring lower margins from cost overruns, which see our FY09 forecast cut by a further 28% to S$185.4m. With earnings expected to be volatile, we had pegged fair value at 1.5x price-to-book, or S$0.81, which remains unchanged. Our SELL recommendation is also maintained.
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