Cosco Corp (S) down 18.7% as trading resumes after long suspension

Singapore

SHARES in Cosco Corporation (Singapore) tumbled to a multi-year low on Monday as it resumed trading after a four-month trading suspension and following its warning late last Friday of significant net losses for its fourth quarter and full year ending Dec 31, 2015.

The stock was suspended on Aug 11 pending an announcement by its parent company China Ocean Shipping (Group) Company (Cosco Group). Cosco Corp (S), which has been giving updates, said last Friday that the Chinese authorities have given in-principle approval for the proposed restructuring of Cosco Group and China Shipping Group Co (CSG).

The Singapore-listed counter of Cosco Corp (S) - which draws over 90 per cent of its revenue from shipbuilding and the remaining from bulk carrier businesses - opened trading on Monday at S$0.31, 6.5 cents lower down from its last traded price of S$0.375. It ended 18.7 per cent down at S$0.305, a multi-year low and also the lowest intraday price since February 2004.

A general market consensus attributed the share price plunge largely to weak sectorial fundamentals for Cosco Corp (S)'s core businesses. Not helping was another drastic oil price fall on Monday to under US$38 for Brent crude, close to a multi-year low in 2008. This dragged the broad market, in particular offshore and marine-linked stocks such as Keppel Corporation and Sembcorp Marine, into the red.

In its Dec 9 profit guidance, Cosco Corp (S) said the expected significant net loss was mainly attributable to the continuing depressed state of crude oil prices; the slump in the shipbuilding market; and the languid dry bulk shipping market.

Cosco Corp (S) already reported a net loss of S$86.1 million at the nine-month stage. Shipyard and shipping revenues were both down at Cosco Corp on depressed margins from higher costs of delayed projects and inventory write-downs as well as lower charter rates for its bulk carrier business. While the spotlight has been on the integration of container shipping portfolios between Cosco Group and CSG, the market was also looking towards "the alignment of Singapore, Hong Kong and China businesses" between the two groups, one investment banker said. Prior to the Friday merger announcement, the hopes were that assets may be injected into Singapore or Cosco Corp's bulk carrier and shipbuilding businesses, which cannot excite investors under a market downturn, the banker said.

But shipbuilding has been left out from the Cosco-CSG merger plan announced on Friday, which flagged restructuring of the combined interests in container shipping, vessel leasing, oil shipping, bulk shipping and financial sectors. The fate of Cosco Corp remains unclear as the early days of the merger look set to focus on container shipping as bulk carrier and even more so, shipbuilding take a back seat, the banker said. This leaves the market to continue to speculate on Cosco Corp (S)'s delisting from the Singapore stock exchange.

"We were looking at privatisation, the merger of shipyards and disposal of bulk carrier fleet at Cosco Corp," said a DBS analyst.

Over in Hong Kong, the Cosco-CSG merger did not save shares in two Hong Kong-listed counters of the Chinese conglomerates from losing ground during the first day of trading resumption. China Shipping Container shed over 26 per cent while China Cosco declined about 28 per cent by market close. The combined container shipping entity, China Cosco Shipping Group, to be based out of Shanghai, may enjoy an enlarged market share and rank fourth with over 2.1 million TEU floating container capacity behind the soon-to-be-merged CMA CGM-NOL, Mediterranean Shipping Co and Maersk Line, according to Alphaliner.

But as a Deutsche Bank research note flagging freight rate depression in container shipping warned, concerns over the topline performance of China Cosco and China Shipping Container "outweighing the positives in restructuring" may continue to set back the stock performances.