Cosco presented yet another set of uninspiring financial results two weeks ago. Fundamentally, it seemed to have worsen. For the past 5 years, it has been suffering negative operational cash-flow. In fact, it appeared to have increased significantly particularly this financial year. I suspect it is related to the oilrig business that the company was trying to get into when the oil price was above $100 per barrel. I believe the learning curve was too long and too deep causing the company to deep into significant debt. Before the company can ‘back-track’, the oil price fell tremendously inflicting more damages to the company’s already weakening fundamentals.
Frankly, for many years, I have been wondering why its share price touched $8 five years ago. The way that things are going, I would not be surprised that it’ share price goes below $0.30 per share for the following reasons:
a. Unlike its close rivals, Yangzijiang (YZJ), on the SGX, it is not building on its expertise. Instead, it chose to take on a higher risk to go into off-shore business.
b. The customer quality seemed less strong compare to YZJ. Just 3-4 years ago, Cosco suffered many order cancellations but there was none for YZJ.
c. There is a possibility that the bank(s) may no longer able to support the company as it piles more and heavier debts. Consequently, it may have to raise equities via rights issue. Many so-called up and coming companies were potential ‘brilliant stars’ only to become super penny stocks in the years that followed.
An opinion for thoughts…..