Stability in sequential PATMI trend was largely on improved bulk shipping economics, as BDI improved from 1,349 in 1Q09 to 2,528 in 2Q09, on average. In 1H09, shipping contributed less than 6% of revenue but 42% of net income (c.US$20 mn).
The shipbuilding business continues to drag with just one delivery to date, out of a 111 vessel order book net of cancellations. COSCO expects deliveries to pick up in 2H09 with 11 vessels undergoing sea trials. But management expects shipbuilding gross margins, 1% in 1H09, to remain subdued for the time being.
The ship repair business remains a relative bright spot with flat revenue QoQ (down 54% YoY) and 36% reported gross margins.
2009-11E earnings are cut by 21-25% (Fig. 2); target price ($0.51), pegged at 1x 08A BVPS, is unchanged. A lack of earnings visibility and relative valuation are reasons for our UNDERPERFORM rating.
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