Cosco Shipping International (Singapore) - DBS Research 2022-08-15: 1H22 Largely In-line; Cut Target Price On Weaker Global Macro Outlook

• Cosco Shipping (SGX:F83)'s 1H22 revenue declined 3% y-o-y to S$92.4m, mainly due to the absence of Shipping revenue.
• Net profit attributable to shareholders fell 9% y-o-y to S$6.2m in 1H22 from S$6.8m in 1H21 as expected.
• No dividend declared for 1H22 (1H21: nil).

What’s new

• Cosco Shipping's 1H22 revenue declined 3% y-o-y to S$92.4m, mainly due to the absence of Shipping revenue (disposed 60% shareholdings in a former Shipping subsidiary in Dec 2021, remaining 40% shareholdings accounted as an associated company and equity accounted for the share of associated company’s profit). Excluding revenue from Shipping, revenue would have increased 10% y-o-y in 1H22.
• Segmental split:
  • Logistics (S$77.2m, increased 8% y-o-y);
  • Property management (S$7.1m; increased 4% y-o-y);
  • Ship repair and marine engineering (S$8.1m, increased 36% y-o-y).
• Cosco Shipping's net profit attributable to shareholders fell 9% y-o-y to S$6.2m in 1H22 from S$6.8m in 1H21. No dividend is declared for 1H22 (1H21: nil).

Our thoughts

• Cosco Shipping's 1H22 numbers were largely in line with our forecasts, with revenue/net profit making up ~45%/49% of our full year forecasts. We think that it is encouraging that all three business segments reported positive revenue growth, with the main logistics business (~84% of total revenue) recording 8% growth y-o-y and the ship repair and marine engineering business recording a firm 36% growth y-o-y driven by an increase in volume of ship repair jobs in Singapore and more marine engineering fabrication jobs due to improvement in offshore marine engineering sector.
• Net profit came in 9% lower y-o-y as expected on lower margins, lower government grants, partially offset by an increase in share of profits of associated companies.
• We think prospects for the logistics business could be impacted by a softer macro outlook in the second half of the year and we remain watchful on the uncertainty of the property management segment after the final extension of the lease for The Grandstand expires in December 2023.
• Cosco Shipping's valuations remain fair as Cosco Shipping's Share Price is trading at 0.7x P/B against less than 5% ROE.
• Maintain HOLD recommendation on Cosco Shipping with lower target price of S$0.24 based on lower multiple of 0.9x P/B (-1 SD) given weaker macro outlook globally in 2H22.