Update on COSCO 1 May 2008

COSCO announced their 1Q 2008 earnings yesterday.

Points in brief

1) Turnover and net profit doubled
................................Q1 FY2008 ...........Q1 FY2007 .........Chg
....................................S$’000 ...............S$’000
Turnover .....................717,656.............. 355,786........ +102%
Gross profit................. 200,622................ 92,490 ........+117%
Pre-tax profit ...............148,660 ................67,450........ +120%
Net profit .....................127,555 ................60,818 .......+110%
Net profit attributable ......83,884 ................41,954....... +100%
to equity holders
EPS fully diluted (cents) .....3.73.................. 1.88 ............+98%
................................31 Mar 2008 ...............31 Dec 2007
NAV (cents) ......................45.26................ 42.00 ............+8%

2) However the net profit for the three months ended Mar. 31 of S$84 million from S$42 million a year earlier fell short of the S$117 million forecast by a Dow Jones Newswires poll of analysts

3) COSCO also said that it has received down payments totaling US$280 million for seven ships that had been outstanding earlier in April.

"We have got down payment for all of our order book and in the future we will announce and book orders only after we receive down payments from our customers," Cosco President Ji Hai Sheng told reporters.

4) Gross Profit Margins increased and are better than peers listed in SGX.

.........................GPM....... Reporting period
Cosco ...............28%................1Q2008
YZJ....................20.9%.............1Q2008
Kepel O & M........9.9%...............1Q2008
Sembmarine........9.1%...............FY2007**

** 1Q 2008 results not out yet....

5) China COSCO Holdings Company Limited yesterday announced that they were going to order nine 57,000 DWT dry bulk vessels worth US$348.9 million from COSCO Shipyard Group Co., Ltd
which COSCO Corp owns 51%. This order is however subject to the approval of a general meeting of shareholders.

2 reasons why COSCO Corp did not announce this yesterday is because the order still needs approval from China COSCO shareholders as well as COSCO's new policy of announcing new orders only after they have received the initial payments. But I am sure this announcement will be coming out in the coming weeks.


In terms of the technicals......


COSCO was sold off going into earnings. The original event that caused the sell off down to 2.79 was due to worries about cancellations of orders and not collecting any deposit. This has been resolved by the management as they have collected the initial payments from all their clients now.

COSCO's sell off going into earnings was probably because COSCO fell short of extremely high expectations on earnings. Is this sell off overdone?

From the chart the price closed below the downward trendline on 29 April 2008 but closed above it again on 30 April 2008. It also closed above the 61.8% fibonacci retracement level.

There is actually bullish divergence between the price and RSI trends.

COSCO has found it hard to break above the 50 day moving average in the past 2 attempts.

What will be (if any) the catalyst that could cause it to do so? Most likely new earnings or new announcements. Over the next few days this does not seem to be likely.

From the techinicals however, I would want to see whether COSCO can keep it's price closing above the downward trendline over the next few days. Hopefully it can consolidate and form a triple bottom formation for which to build the next rally from.