COS has in total rescheduled 37 deliveries and cancelled 13 vessels, and we think more may be possible. We previously highlighted that some of the rescheduled vessels may be cancelled and the recent cancellations from COS’s parent clearly demonstrate that. Repair has seen a 40% fall in revenues. COS mentioned that it has not received any direct benefits from the ship building stimulus package.
COS tracks the BDI closely which may in part explain its recent share price strength. Note, Deutsche Bank has a 1,500 and 2,000 average target for the BDI for 2009 and 2010, respectively, versus the current level of about 3,350. We have made the following modifications: (1) rolled over our target PEG from December 2009 to June 2010, (2) lowered our earnings forecasts by between 5% and 7%, and accordingly, (3) raised our target price from S$0.39 to S$0.41.
We base our target price for COS on 0.7x Jun-FY2010E BV and have crosschecked it with the ROE-COE-growth model. Upside risks include higher-thanexpected new order wins, lower-than-expected steel price increases and betterthan- expected project execution (see p. 4 for more details). Maintain Sell.
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