Even as Kim Eng upgraded Cosco to buy on low valuations of just 2.7X FY09 P/E with $1.95 target price, Deutsche Bank initiates at Sell, sets $0.50 target price. Broker says company faces inevitable exposure to shipbuilding down cycle; "risks are high, with a potential industry overbuild of bulk carriers, difficulty in securing financing, which has contributed to fewer new order wins, a potential shipyard capacity overbuild and steel price volatility." Adds, "year to date new orders have collapsed for Cosco, and we believe they are at the cusp of an unprecedented industry downturn." Says stock still trading at premium to regional peers.
Deutsche Bank also initiates Yangzijiang at Sell, sets $0.21 target price. Broker warns stock very leveraged to shipbuilding supercycle reversal; "industry risks are high and any order cancellations, shipyard failures, decline in vessel prices, or news on inability to secure financing, would be viewed as negative catalysts." Says new orders have fallen sharply, expects weakness to persist, customers may face financing difficulties, execution of contracts remains a worry. Adds shares still trading at premium to other China shipyards.
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