Fairly priced; D/G to HOLD
- Results marginally below due to low commodity trading.
- Share price rally due to takeover rumour but we think catalyst has been largely priced in.
- Downgrade to HOLD with unchanged TP SGD2.18.
Results marginally below expectations
- CWT’s 2Q15 results were marginally below expectations, with net profit down 14% YoY and 1H forming 47% of our full-year forecast.
- Revenue declined 45% YoY due to lower trading volume in naphtha and a general drop in commodity prices.
- Gross profit dropped 16% YoY, which was largely attributed to the fall in commodity logistics volume, slowdown in trade services and start-up cost of new logistics hub.
- The board has approved a maiden interim dividend of SGD0.03 per share.
- CWT also made an announcement that its controlling shareholder, C&P Holdings, is considering a strategic review, which may or may not lead to a transaction involving CWT.
Catalyst priced in; D/G to HOLD
- CWT’s share price gained 15% in the past three months due to market rumour on a potential takeover offer. It is now trading at only 1% above our TP.
- CWT’s announcement on strategic review suggests such takeover offer is possible.
- We value the warehouse portfolio at around SGD900m. If we assume the potential buyers are willing to pay 15-20x PE for the remaining business (ex. commodity trading, which we value at 4x PE), we estimate the takeover price is between SGD1.4-1.6b, which is only 10-20% higher than the current market cap.
- However in the event of the deal falling through, we see 20-30% downside risk in share price. Thus, we believe the catalyst has been largely priced in and the risk/reward is balanced at the current level.
- We downgrade the stock to HOLD from BUY.
- We cut our EPS forecasts by 5-7% for the next three years on lower commodity trading revenue and roll over valuation base to FY16. Our SoTP TP remains at SGD2.18.
Analyst: Wei Bin
Source: http://www.maybank-ke.com.sg/
