by winston » Sat Sep 20, 2008 10:10 am
Not vested.
China Cosco May Gain on Ship Supply, Construction By Wendy Leung
Sept. 19 (Bloomberg) -- Reinforced steel bars litter the ground in eastern Shanghai, where migrant workers in blue and orange uniforms are building a UFO-shaped performance center for the city's 2010 World Expo.
The building will use 20,000 tons of steel. In addition, China is constructing the world's largest shipbuilding center, the longest high-speed railway and the biggest port.
That demand may help China Cosco Holdings Co., operator of the world's largest dry-bulk shipping fleet, rebound from a 45 percent slump. The decline followed the government's July 30 closings of plants and construction sites to clear air pollution for the Olympics. Bulk cargo rates also dropped 41 percent as the moves damped imports of iron ore, a key steel ingredient.
Shipments may now surge as Shougang Corp. and other steelmakers resume production with the Sept. 21 end to restrictions. Delays in ship deliveries may also support leasing rates for container ships and bulk carriers, which have dropped because of the global economic slowdown.
``There is no slowdown in demand for raw materials in China,'' said Mona Chung, who manages $2 billion at Daiwa Asset Management Ltd. in Hong Kong. She declined to comment on whether she owns China Cosco stock. ``Sentiment on China Cosco will definitely improve as the Baltic Dry Index rebounds.'' The index is a measure of commodity-shipping rates.
Shares Jump
China Cosco rose the most since the shares started trading in Hong Kong in 2005. The stock jumped 26 percent to HK$9.94.
The shipping line may almost double to HK$19 in the next 12 months, according to Morgan Stanley analyst Sophie Loh, who rates the shares a buy.
That would contradict four of the five analysts tracked by Bloomberg whose recommendations on China Cosco produced the highest returns for investors in the past year. They rate the company ``hold'' or ``sell.''
Overall, 24 of 29 analysts surveyed advise buying the stock, four say hold and one recommends selling.
China Cosco, which also runs the country's largest container line, dropped 60 percent in the last 12 months. The decline makes it the cheapest stock in the Hang Seng China Enterprises Index relative to this year's estimated earnings.
Cheap Stock
The shipper is the world's second-biggest by market value after Copenhagen-based A.P. Moller-Maersk A/S. China Cosco is priced at 3.3 times this year's estimated earnings, compared with the average price-earnings ratio of 15.3 for the 42 mainland companies listed in Hong Kong that make up the index.
Maersk trades at 9.5 times estimated profit.
Among the top five analysts who track China Cosco, Thomas Kim of Goldman Sachs Group Inc. and Kenny Tang of Tung Tai Securities Co. recommend holding the shares. Osbert Tang of ABN Amro Asia Ltd. says sell and Johnson Man Leung of JPMorgan Securities Ltd. advises buying.
``There could be buying opportunities,'' said Binay Chandgothia, who oversees $2 billion of assets at Principal Asset Management Asia in Hong Kong. ``If you look at the market prices, they may be over-pessimistic.''
The shipping industry may benefit from tightening credit markets caused by the bankruptcy of Lehman Brothers Holdings Inc. as limited financing for new ships may prevent overcapacity. Roslyn Ji, an analyst at Core Pacific-Yamaichi International Ltd. said in Beijing. The market meltdown will not stop construction in China, she said.
Shipbuilding Delays
Global shipyards may miss as much as 19 percent of deliveries scheduled and delays will increase to as much as 39 percent next year, Citigroup Inc. analyst Lee Sokje said on Sept. 9. The problem will be more severe in China, with more than half of scheduled deliveries late in 2009 because of a lack of skilled workers and key parts, Lee said.
``It will help relieve the pressure if deliveries are delayed next year,'' Ji said. ``Even though the rates have dropped, they are still at high levels.''
China, the world's fastest-growing economy, is buying more raw materials for urbanization and industrialization. China's steel production may rise 9.4 percent to 535 million metric tons this year, while demand may increase 14 percent in the second half, China Iron and Steel Association said in July.
China Cosco agreed to buy 412 dry-bulk ships from its parent for 34.6 billion yuan ($5.07 billion) last year. China's economy has grown by at least 10 percent annually since 2002.
``Production will come back to normal as the Olympic games end,'' China Cosco Board secretary Zhang Yongjian said in a phone interview on Sept. 12. ``Freight rates in the fourth quarter are expected to rise significantly. It will boost our full-year revenue.''
In the first half, the company locked in 76 percent of dry- bulk operating days this year and 20 percent for next year.
Shipping Rates
The Baltic Dry Index, a measure of bulk-shipping rates, reached a record high on May 20 and has since plunged 58 percent, partly because China shut factories and steel mills around Beijing to curb pollution during the Olympics.
China, the largest customer for dry-bulk ships, has cut steelmaking as the economy cools.
China's steel consumption is supported by construction of housing after May's earthquake in Sichuan and railways, Zhang said. ``Chinese demand from Brazil and Australia for iron ore and coal still continues to grow steadily.''
( Winston's Comment: The slowdown in property development will decrease the demand for Steel )
It's all about "how much you made when you were right" & "how little you lost when you were wrong"