SINGAPORE (June 2): OCBC Investment Research is ceasing coverage of Cosco Corp Singapore, as future plans for shipping and marine group seems unclear.

“New orders have dwindled for the group, and the past few years have seen it executing its order book with cost overruns as it attempts to scale the offshore learning curve,” says lead analyst Low Pei Han in a Wednesday report.

Along with continued bank borrowings, this has resulted in the group ending up in a “significantly leveraged” position during a period of industry downturn, which Low emphasises is “hardly enviable”.  

Furthermore, the group is currently in the midst of what Low calls “one of the most complicated restructuring efforts in the history of China’s capital markets”, a merger between Cosco corp’s controlling shareholder China Ocean Shipping, and China Shipping Corporation, to form China Cosco Shipping Corporation (Cosco Shipping). This transaction is part of a state-driven plan to streamline and reorganise China’s shipping and shipbuilding industry.

The group has reported consecutive annual negative operating cash flow for the past seven years. Low proposes that Cosco’s continued operations are due to its status as part of a larger state-owned entity, but adds that the business has “essentially been propped up by bank loans”. This has inevitably led to an increase of net gearing from a net cash position in FY09 to 3.9x as at 1Q16.

As at 11.12am, shares of Cosco are up 1.59% at 32 cents.