Cosco: High debt and negative cash flow remain

Once again, Cosco Corporation delivered another set of uninspiring results for Q1 2015.  Its earnings per share is 0.03 cents compared with 0.56 cents one-year ago, representing a significant drop of 95%.




The increasing debt has  caused the profit margins to continue thinning. The stretching receivables is also putting doubts on the company’s ability to survive in this aggressive environment. It has been suffering negative operating cash flows for 6 years. It fact, these numbers puts doubts on whether it can continue to operate as an on-going concern.

One critical concern is that the company did not even provide Q4 2014 results, but simply consolidate them into FY2014. Deductions have therefore to be made. Apart from the uninspiring numbers, the profit attributable to shareholders cannot be tallied between the consolidated FY 2014 and the other quarters.

The interest cover failed miserably, meaning that the net profit falls grossly short of the finance cost.  Even based on a price of $0.53, the PE is 442, which is grossly over valued. Right now, it is dependent on the bank loans to continual operation, and it would not be surprising if the company have to raise rights for it to continue its operation. Note also that the company has pledged its receivables (not sure partial or 100%) for loans, which means it would be difficult for shareholders to recover their investments should the company goes into a liquidation.

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