Cosco's urgent need to refill its order book intensifies

The company will exhaust the delivery of the 39 bulk carriers by June 2013.

Here's more from CIMB:

Cosco Dalian has secured a US$170m jack-up rig contract from Talland Navigation, a subsidiary of London shipping conglomerateForesight Limited. The rig will be built based on the LeTourneau Super 116E Class design. It will be capable of operating in 350 feet water, with 120 persons onboard, and drilling depth of 30,000 feet. Delivery is scheduled in 1Q15.

What We Think
Foresight currently has two 32-year old jack-up rigs built in the 1980s by Levinston Singapore. The contract is about 11% cheaper than the average prices for similar rigs that Keppel secured in 2011 of about US$192m/each.

Cosco’s offshore division is barely profitable with its 9-10% gross margins in 2Q12. Further downside is likely as an array of new products (jack-up rigs, tender rigs, semi-sub accommodation rigs) will be progressively executed at 9-10% gross margins in 2012-2014, with the potential for execution hiccups and provision for cost overrun.

Cosco’s shipbuilding outlook is also bleak as the company will exhaust the delivery of the 39 bulk carriers by June 2013, intensifying the need to refill its order book (US$5.9bn as of 2Q12) to cover the fixed costs of shipbuilding yards. Cosco does not rule out the possibility of bidding for zero-margin shipbuilding contracts to keep the yards afloat.

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