Cogent Holdings Ltd - Phillip Securities 2016-10-21: Seize the opportunity

Cogent Holdings Ltd - Phillip Securities 2016-10-21: Seize the opportunity COGENT HOLDINGS LIMITED KJ9.SI

Cogent Holdings Ltd - Seize the opportunity

  • Resignation of GM does not materially affect ongoing business.
  • Progress made on Jurong Island Chemical Logistics Facility project.
  • Price weakness presents an opportunity to accumulate - reiterate BUY.



What is the news? 

  • Earlier this week on Monday, the price of Cogent Holdings Ltd (Cogent) stock shed 7.3% to close at 76 cents. Cogent subsequently made two announcements – one on Tuesday, and the other on Wednesday. The first announcement was pertaining to the resignation of its General Manager, Chairman's Office, and the second was an update to the Jurong Island Chemical Logistics Facility project.
  • For context, we remind investors that Cogent Jurong Island Pte Ltd (CJI), a wholly-owned subsidiary of Cogent, had received a letter of offer from JTC Corporation (JTC) dated 6 September 2016 for Phase One of the construction of the Jurong Island Chemical Logistics Facility. Cogent had accepted the letter on 8 September 2016.


How do we view this? 


Business as usual: Resignation of GM does not materially affect ongoing business 

  • As disclosed in the announcement, the General Manager (GM) is "responsible for assisting the Chairman in all matter relating to the operations of the Group. His job responsibilities include liaising with the management staff and executing management plans assigned by the Chairman." The Chairman, was then concurrently the Chief Executive Officer (CEO) until December 2014. Thereafter, a new CEO was appointed in January 2015 and has fully taken over the responsibility of setting Group strategy. 
  • We understand from Management that there will not be a replacement for the vacant GM role. 
  • We do not view the GM's departure as having any material adverse impact to the Group's ongoing business.

Business on track: Progress made on Jurong Island Chemical Logistics Facility project 

  • The update disclosed that Cogent "is currently working with various consultants and the relevant authorities towards constructing the Jurong Island Chemical Logistics Facility." For the avoidance of doubt, Cogent has physically taken over the land at Tembusu Crescent and the project will be executed. 
  • We have learnt that activities leading up to construction of the facility include inviting quotations to tender for the project, and selection of the main contractor. We retain our existing forecast in our previous report (13 September), for construction to commence in 2HFY17, with Phase One receiving its Temporary Occupation Permit (TOP) in 1HFY19.
  • We again highlight that Phase One and Phase Two combined of the Jurong Island Chemical Logistics Facility will be just as large (c.150,000 sqm) as the existing Cogent 1.Logistics Hub. We expect a material positive impact to earnings when contribution from the Jurong Island Chemical Logistics Facility starts to flow through to the bottom line. As such, we view this project positively.
  • Our expectations is for impact to earnings to come only in FY19, coinciding with TOP for Phase One. An earlier than expected completion of the project would be a positive welcome for the stock. Conversely, execution risk would be the de-rating factor.


Maintain "Buy" rating with unchanged DDM-backed target price of S$1.11 

  • While current forecasted dividend yield of 3.2% is modest, investors can look for capital appreciation that is underpinned by earnings growth from the project. Our target price gives an implied forward P/E multiple of 15.6x over next-twelve-months (NTM) 7.13 cents EPS.
  • We again recommend investors to accumulate on price weakness. Reiterate "BUY".




Richard Leow CFTe Phillip Securities | http://www.poems.com.sg/ 2016-10-21
Phillip Securities SGX Stock Analyst Report BUY Maintain BUY 1.11 Same 1.110



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