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Cosco Corporation (Singapore) Limited’s Trading Suspension: Here’s What You Need to Know

Offshore marine engineering and shipbuilding outfit Cosco Corporation (Singapore) Limited (SGX: F83) had asked for its shares to be suspended from trading earlier today before the market opened.

The move was made by the company as its parent, China Ocean Shipping (Group) Company, a Chinese state-owned enterprise, is in the midst of planning a “significant transaction.” There’s no guarantee that said transaction will happen, but if it does, “it may or may not have a material impact” on Cosco Corp’s securities.

A merger of failing giants

Yesterday, the Straits Times reported that China’s government has already asked China Ocean Shipping to begin talks with fellow beleaguered state-owned shipping outfit China Shipping on a possible merger.

This may very well be the reason behind Cosco Corp’s request for a suspension earlier today. At this point though, everything related to the merger is still in the realm of speculation and there’s really very little information for investors to work with when it comes to thinking about a possible future for Cosco Corp.

Things we know

Cosco Corp’s shares have had a horrible time over the past three months with their price sliding by some 29.3% to the pre-suspension level of S$0.375. At that level, Cosco Corp seems to be a great bargain given that it’s trading at merely 61% of its book value (total assets minus total liabilities) per share of S$0.6137.

But, there may be good reasons why Cosco Corp’s so cheap – its business is suffering and more pain may be on the way.

In April and May this year, a number of Cosco Corp’s customers in the offshore marine segment had asked to delay the deliveries of their orders as a result of low oil prices. Then, barely a month ago in mid-July, Cosco Corp issued a profit guidance, warning that it “will show a net loss” in the second-quarter of 2015 as compared to a profit that was seen a year ago.

Turns out, the profit guidance was spot on, with Cosco Corp clocking a loss of S$10.3 million for the quarter with its revenue tanking by 26% year-on-year to S$853.5 million. It’s also worth noting that Cosco Corp’s trade receivables had spiked by 31% from S$3.95 billion at end-June 2014 to S$5.19 billion at end-June 2015 despite the aforementioned year-on-year revenue decline; this phenomenon may be a yellow-flag highlighting future trouble to come.

Cosco Corp’s not optimistic about its own near-term prospects either, with it commenting in its earnings release for the second-quarter of 2015 that it “expects business conditions for the rest of 2015 to remain difficult.” The low price of oil and weak markets in dry bulk shipping and shipbuilding have all contributed to the malaise.

A Fool’s take

It’s anybody’s guess as to what a possible merger between Cosco Corp’s parent and another shipbuilding outfit may mean for the Singapore-listed company. But whatever happens, it’s important to note that a prudent course of action with regard to Cosco Corp’s shares will ultimately still rest on the relationship between the company’s share price and its underlying intrinsic business value.

At the moment, given what we’ve seen, the future performance of Cosco Corp’s business may be fraught with difficulties and that has to factor into our thinking when considering the value of Cosco Corp’s business.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn't own shares in any companies mentioned.