Following up from SELL trading call made on 7th May 2013. Cosco has indeed traded lower after breaking critical support level at 0.800 in May 2013. After trading downwards in June 2013, recently we have seen Cosco Corp consolidated just above the 0.73 support level for about a month forming lower highs on each rebound. A Descending triangle breakdown formation is seen currently and if the support at 0.73 does not hold, more downside is possible to 0.700 fast. A break below 0.700 support can see it trend further lower in the near term. Note that it has been consistently trading BELOW the 20 DAY MA (Green line) which shows that downward trend in the short term is still pretty much intact.
Buy stop at 0.775 for CFD Short trades
OCBC – 5th July 2013
COSCO Corp (Singapore): Don’t catch a falling knife
COSCO Corp (Singapore)’s share price has fallen by about
14% since our last update (“Downgrade to Sell – Missed
Expectations”, 6/5/2013) such that it is close to our
previous S$0.76 FV. However, we do not think it is time to
upgrade our call. The macro environment is looking
increasingly gloomy. In China, an unexpected credit
squeeze in the Chinese interbank market raised concerns
over the fragility of the Chinese banking system. The
surprise was that the PBOC took an unusually tough line by
refusing to inject liquidity, at least for a few days. Should
the credit conditions deteriorate, we think that COSCO, with
its large debt burden, will be vulnerable. The group’s net
gearing climbed to 131% as of end 1Q13, from just 10% as
of end FY10. We estimate about half of its existing debt
(S$3.4b) would need to be refinanced within the next 12
months. Considering the risks, we cut our PBR peg to 1.0x
(or 2 std dev below) and FV to S$0.60 (previously S$0.76).
Maintain SELL.
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