Cosco Corp

New president a cause for concern?
26 Sept 2008


An elder once told me, a successful leader is not one who has a hoard of followers but rather one who raises up new leaders in his or her absence.

Its a well known fact that the Ex-President of Cosco Corp, Ji Hai Sheng, has been the backbone of the company's success, but the real measure of his capabilities will be based on the performance of new President, Jiang Li Jun.

Cosco announced the retirement of its beloved President on August 6.

Two days later on August 8, DBS Vickers downgraded the stock to FULLY VALUED from HOLD and slashed its target price to S$2.46 from S$3.25. And it wasn't because of its Q2 2008 earnings released four days earlier.

In fact Cosco's performance was rather commendable. In the midst of battling fewer ship orders, order cancellations and rising steel prices, the company somehow managed to not only generate more cash from operations, it doubled its revenue with net profit up by more than 50%.

So what warranted the downgrade from DBS?

While rising cost and slowing orders were contributing factors, the primary reason was the resignation of President Ji Hai Sheng. Citing a meeting with Mr Ji, a talk with the man himself was not enough to put the research house at ease as it still believes that the change in management has caused a rippled of worry among investors.

It looks like Cosco will need a bigger bait to get the analysts to bite.

The recent US$256 mln contract won by the business on September 23 was enough to get CIMB to maintain their OUTPERFORM call it dropped it target price to S$2.89 from S$2.95 because of lower margins and orders.

Despite the handful of concerns raised by the analysts, though valid, both still expect revenue, net profit and dividends to continue growing for the next two years.

It's hard to measure if the leaving of President Ji has taken a toll on investor confidence considering that the stock has been on a fast and furious tumble since November 2007.

But before you start shaking your head at the current state of the stock. Think about it, what would have cost you nearly S$8,000 per lot last year is now going at a quarter of that price.

Cosco says it is confident of its prospects for FY2008. And when you're sitting on free cashflows of S$1.02 bln with an order book of US$7.4 mln on hand, would it really matter what analysts think?

Let's hope Ji Hai Sheng lives up to his reputation when he hands over the reins. Over to you President Jiang.

Analysts surveyed by Reuters have on average a HOLD call on the stock with a target price of S$2.60.

Please seek professional advice before making any investment decisions.

By Yeo Sue En Investor Central

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