SINGAPORE (Nov 7): DBS Group Research is keeping its “hold” call on Cosco Shipping International (Singapore) but raising its target price to 33 cents, from 27 cents previously, in view of better clarity on its new core business ahead.
This comes after Cosco tabled its bid to foray into the logistics business via a takeover offer to acquire SGX-listed shipping logistic services provider Cogent Holdings.
Cosco last week announced it has made a voluntary conditional cash offer to acquire all the issued ordinary shares of Cogent at an offer price of $1.02 each, for a total of $488.07 million.
DBS analyst Ho Pei Hwa says the move paves the way for Cosco to develop new business opportunities in the logistics sector in Southeast Asia, taking advantage of China’s Belt and Road Initiative.
See: Cogent gets $1.02 per share cash offer from Cosco Shipping
In addition, Ho says the disposal of Cosco’s shipyard business to its parent bodes well for the company.
Cosco is selling its stakes in three shipyard, ship repair and ship building subsidiaries to its parent company China Cosco Shipping for a consideration of RMB 1.47 billion ($297.1 million).
See: Cosco Shipping Int'l (S) selling stakes in 3 shipbuilding units back to parent for $297 mil
Post transaction, Ho estimates that Cosco’s book value will improve to approximately $530 million, from $252 million as of end-March.
“The transaction allows Cosco to turn over a new leaf,” Ho says. “Instead of net debt, it will be sitting on a cash hoard of $300 million, representing 55% of its book value.”
“Strong cash position post disposal presents opportunities for earnings-accretive acquisitions,” Ho adds.
In addition, the analyst believes a rebound in oil prices to above US$60 per barrel could see Cosco’s share price rise in tandem.
As at 4.40pm, shares of Cosco are trading 2.5 cents higher at 38 cents.