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COSCO Corporation (Singapore) Limited’s Latest Earnings: Painful Times Ahead

COSCO Corporation (Singapore) Limited (SGX: F83) had released its fiscal first-quarter earnings (for the three months ended 31 March 2016) last Friday.

As a brief background, COSCO provides ship repairing, ship building, and marine engineering services. It is also a subsidiary of China Ocean Shipping (Group) Company, China’s largest shipping group.

With that as a backdrop, let’s dig into the firm’s latest earnings.

Financial highlights

The following’s a quick rundown on some of the latest financial figures for COSCO:

  1. For the reporting quarter, COSCO’s revenue had slumped by 27% year-on-year to S$722.3 million due to lower revenue contribution from its marine engineering and ship building activites.
  2. But, the company’s gross profit managed to increase by 22.3% to S$89.3 million in the same period.
  3. Yet, COSCO’s bottom-line plunged into the red, from a profit of S$4.25 million in the first-quarter of 2015 to a loss of S$11.7 million in the reporting quarter. COSCO had suffered from a 31% decline in other income (to S$13.8 million) and a huge 54% spike in Finance expenses (to S$59.7 million).

Moving on to the balance sheet, COSCO ended 31 March 2016 with a net debt position of S$4.96 billion (S$2.21 billion in cash and equivalents and S$7.17 billion in total debt). The company’s net debt position has climbed significantly from the S$3.73 billion seen in the first-quarter of 2015.

COSCO also has S$4.53 billion in borrowings which are repayable within a year of 31 March 2016 (or can be called back on demand); investors might want to see if the company’s finance costs will rise when it refinances its debt given the challenging environment for the shipping industry.

Last but not least, COSCO had recorded negative cash flow from operations of S$184 million in the reporting quarter, a step down from the negative S$101 million seen a year ago.

Future prospects

COSCO had given some comments in the earnings release on its dim outlook for the near-term future:

“Under such challenging circumstances, new orders started to decline in 2014 and this continued throughout 2015 and into Q1 2016. Some customers have delayed accepting delivery of projects upon completion and it is possible that more customers will seek to delay delivery of projects or seek deferment of payment schedules.

Any rise in wages, prices of raw materials required for production as well as higher financing costs may exert even greater downward pressure on the operating margins of the Group’s shipyard operations. “

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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 contributor James Yeo doesn’t own shares in any companies mentioned.