COSCO secures $500mln rig contract

Subsidiary Cosco Nantong Shipyard of the Singapore-listed shipbuilder won a $500 million contract for Sevan Driller II Rig.

In line with the deep water drilling rig deal, Phillip Securities Research Pte Ltd has raised its earnings estimates for Cosco for the next three years to show the earnings contributions from the contract. In a statement, Phillip Securities Research said, "We have increased Cosco’s net profit estimates by 8.1%, 6.9% and 8.3% to S$139.0m, S$138.5m and S$139.1 for FY2010F, FY2011F and FY2012F respectively. Moreover, the earnings projections may be revised upwards if Cosco wins more contracts."

Phillip Securities Research explained, "With oil prices fluctuating above US$80 per barrel, there is a possibility that Cosco may win more offshore marine contracts. This can mitigate the difficulties that Cosco faces in obtaining contracts for building dry bulk vessels. As we are more optimistic on the future earnings of Cosco, we have upgraded our recommendation from sell to buy and raised the fair value from S$1.03 to S$1.45. This is a change from 2.01 times to 2.80 times book value for FY2010F."

The delivery date for the deep water drilling rig to Sevan Drilling is scheduled to be in the first quarter of 2012, according to Reuters.

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