Cosco Corp (S) posts 30% rise in Q1 profit but sees margin squeeze

SINGAPORE - Shipbuilder Cosco Corporation (Singapore) reported a 30 per cent rise in first quarter net profit to $12.6 million on higher sales.

Turnover for the three months to March 31 soared by 42 per cent to $1.04 billion.

The bulk of it was contributed by shipyard operations, which increased revenue by 43.2 per cent to $1.03 billion, supported by higher revenue contribution from ship repair and marine engineering.

This more than offset the decline in revenue from shipbuilding.

Cosco delivered three bulk carriers, one each of livestock carrier, rig, pipelay heavy lift vessel and wind turbine installation vessel during the quarter.

Gross profit increased 21.8 per cent to $95.7 million, mainly due to higher profit contributions from dry bulk shipping and shipyard operations.

Other income jumped by 87.8 per cent to $20.5 million, mainly due to higher interest income.

As at March 31, the group's order book stood at US$7.6 billion with progressive deliveries up to 2016.

New orders during the quarter included two each of livestock carriers and platform supply vessels.

Margins, however, remain under pressure.

"As the group continues construction in 2014 on new shipbuilding contracts that were secured in recent years at low contract values due to the slumping shipping market then, the group expects operating margins on these new shipbuilding projects to continue to be under great pressure notwithstanding improving gains in efficiency and productivity," said Cosco.

The offshore marine engineering business is also facing increased competition from new entrant shipyards.

In dry bulk shipping, the group expects the positive impact from any further rebound in Baltic Dry Index to be subdued as expansion in the global bulk carrier fleet continues to outpace demand.

Cosco maintains a cautious outlook for the year with continuing uncertainty over the state of the global economy and global economic growth.

Cosco shares inched up half a cent to 72 cents on Wednesday. The results were announced after market closed.