Is Cosco's Orderbook Healthy?
While Cosco’s orderbook of US$8 billion seems hefty, the shipbuilding contracts are of low value, says a report in SBR. The orderbook may do the company more harm than good.
As at 31 December 2015, Cosco’s order book stood at USD 8 billion with progressive deliveries up to early 2018. New orders received in 2015 include 7 container vessels, 2 cargo transfer vessels, 2 oil tankers, 1 shuttle tanker, 1 module carrier, 1 tanker assist/emergency response/rescue/field support vessel, 1 research vessel, 1 product oil tanker and 1 FPSO conversion.
The shipbuilding contracts in Cosco’s orderbook are of low value, points out a research report from DBS.
Worse, Cosco’s O&G customers are delaying rig deliveries in view of the unimpressive chartering market and could potentially encounter more cancellations in a prolonged downturn.
Concerns are also lingering over the drillship and cylindrical rig sagas. With the flagging market sentiment and supply flood of new drilling rigs, Cosco will likely have trouble closing the sale of the cancelled drillship unit.
DBS further notes that Cosco’s whopping $570m net loss in FY15 wiped out almost 40% of its book value. Moreover, the elimination of the privatisation angle in the near term limits re-rating catalysts for the company.
The company’s offshore segment is still grappling with a steep learning curve in with its diversified product range.
In a study report, analyst Ho Pei Hwa expects Cosco to remain in the red for the next two years, as the group continues to face deferments/cancellations and cost overruns amid the sector’s downturn.
Given the weak market sentiment and abundant supply of new drilling rigs, Ho says it will be challenging for Cosco to conclude the sale of the cancelled drillship unit.
As the world shipping market continues to face tonnage over- capacity pressures, new shipbuilding orders have fallen to a low level in 2015, and Cosco expects 2016 to be another very difficult and challenging year for the group.
Captain Wu Zi Heng, vice chairman and president of COSCO said, “The global offshore market continued to slow down significantly with no signs of improvement. Amidst persistent weakness in the state of the global economy and depressed crude oil prices, the group continues to face adverse unfavorable market conditions."
“Against the backdrop of these difficult and challenging business and operating conditions, which is likely to persist and even worsen in 2016, our group will capitalize on the downturn to improve our capabilities for long-term sustainable growth in our offshore marine engineering and new shipbuilding operations.”
