Wednesday, April 30, 2008

Cosco 1Q Report

By Daryl Loo

SINGAPORE, April 30 (Reuters) - Shipbuilding and repair firm Cosco Corp (Singapore), controlled by China's biggest shipping firm, reported on Wednesday a doubling in first quarter profit and said it was confident about prospects this year.

Top shipbuilders such as Korea's Hyundai Heavy Industries and Daewoo Shipbuilding have posted strong profit in recent quarters as high-value orders since 2005 offset the impact of spiraling raw material costs and fears of a slowdown in the global economy.

"Our group is cautiously optimistic of our ability to sustain growth and profitability in 2008 even against the challenging backdrop," Cosco President Ji Hai Sheng said in a statement.

He acknowledged, however, that the business environment has become tougher due to rising steel and labour costs as well as the depreciating U.S. dollar.

Singapore-listed Cosco said its order book for offshore oil rigs and vessels at its China shipyards stood at $7.1 billion which would keep it busy till 2011, up from $6.5 billion at the end of last year.

The firm was continuing to build capacity to help it cope with orders, it added.

Cosco, majority-owned by China Ocean Shipping (Group) Co, posted a net profit of S$83.9 million ($61.8 million) for the three months to the end of March -- up from S$41.9 million a year ago -- due to higher revenue from ship repair, shipbuilding and marine engineering.

Sales more than doubled in the quarter to S$717.7 million.

But some investors are concerned that shipping firms will put off their fleet expansion plans due to uncertainty about the global economy, although rig-building is likely to stay bouyant thanks to high oil prices.

Cosco shares sank 15 percent to a near one-year low on April 10, a day after the firm said it was cancelling a $202 million rigbuilding project for Norway's Red Flag A.S. because the customer did not pay a deposit.

But the firm has received the outstanding deposit for seven vessels valued at about $280 million this week, a Cosco official said on Wednesday.

Cosco's shares have plummeted 47 percent so far this year, underperforming the 38 percent decline in an index of Singapore-listed Chinese firms and the 9 percent fall in the benchmark Straits Times index

Citi analysts downgraded Cosco to a "sell" this month and slashed the target price, citing risks of more contract cancellations due to a global economic slowdown, spiraling steel prices, and a potential oversupply of bulk carriers.

(Reporting by Daryl Loo and Kevin Lim; Editing by Jan Dahinten)

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