Earnings warning +90% Y/Y in our ball park: Cosco warned
that 1H08 earnings may reach Rmb13.4 billion in its preliminary
review, which would be almost double the earnings for the same
period last year. There is no consensus 1H08 estimate. But
judging by the 27% Y/Y growth in the consensus FY08 estimate,
this earnings warning should bring substantial earnings revisions
as 2H08 could be stronger than 1H08 except in the tail end where
surplus capacity may put an end to the freight rate bull run, in our
view. We estimate 72% Y/Y growth for Cosco’s FY08 earnings,
which may be revised when we see the updated capacity and
secured freight rate for the remainder of the year in the interim
results announcement.
• Lower Dec-08 PT: We lower our Dec-08 price target to HK$22
(from HK$27) as we move onto valuing Cosco by resale-valuebased
NAV to be in line with our cautious 2009 outlook on the
dry bulk shipping sector. The fluctuation of resale value as a result
of the change in the freight rate outlook, particularly those
concerning 2009 onward, is the key risk to our PT and call.
• Earnings revision, BDI volatility and asset injection are
potential catalysts: A BDI rally between 3Q and 4Q, in our view,
as well as the potential for further earnings revisions, according to
the disclosures in the interim results, should provide near-term
catalysts for the stock.
