Brokers' Take

Cosco Corp Singapore

Nov 6 close: $1.99

MERRILL LYNCH, Nov 6

WE ARE reinstating coverage on Cosco Corporation with a 'buy' recommendation and a 12-month price objective of $2.34 based on DCF valuation. A strong macro outlook coupled with excellent execution will propel earnings growth.

The tide is still rising: Prospects for Chinese shipyards remain excellent. We expect further upside for Cosco as robust global economic growth and increasing trade activity have resulted in even stronger industry dynamics. The global merchant fleet is in the midst of rapid expansion. Nowhere is it more apparent than in China, where Cosco's ship repair yards are all fully utilised at peak capacity.

Strong strategic focus: Cosco's strategy of focusing on its shipyard operations has borne fruit. Over the past two years, flawless execution has resulted in the group becoming one of the premier shipyards in China. A progressive expansion strategy already underway will help ensure Cosco becomes the dominant shipyard operator in China.

On pace for record profitability: Cosco seems on track to achieve record earnings over the next three years as it expands capacity and embarks on its offshore rig-building programme. We forecast a net profit CAGR of 28 per cent over 2006-08, making Cosco one of the fastest-growing blue chips under our coverage.
BUY

Compiled by UMA SHANKARI