The outlook for the shipping building industry continues to deteriorate, in our view.Management presented a notably downbeat 2009 outlook highlighting the risk offurther delivery delays and order cancellations. Management also guided thatmargins for the shipbuilding & shipping divisions will continue to come underpressure and that planed expansion of the ship yards has been scaled back.Trading at 1.5x P/B we maintain our underperform rating and PO of S$0.45/share.

Cosco has reported FY08 results with PATMI of S$302.6mn, down 10% YoY. Theresults were below expectations, with YTD PATMI representing only 90% of oursand 93% of consensus estimates. 4Q08 was loss making (PATMI -S$24mn) dueto the recognition of S$173mn of one-off write-downs & provisions. FY08 netmargins declined to 8.7% vs 14.9% in FY07.

One-off write-downs and provisions were attributable primarily to lossesrecognized on ongoing projects (S$89mn, including higher steel and operationalcosts and resettlement expenses), provision for doubtful debts (S$61mn), and thewrite-down of steel inventory (S$21mn). Management commented that all write-downs relating to ongoing projects and inventories have now been accounted for.

We have trimmed our FY09/10 estimate by <3%. Our 2009 earnings estimatesare currently 20% below consensus due to i) lower shipyard margin assumptions,ii) 86% decline in revenues from shipping division (all charter contacts will expireby end 2009), & iii) assumption of 25% cancellation of order book.