CWT LIMITED
C14.SI
CWT Limited - Will the buyout happen, and when?
- The focus for CWT in 2016 will be on news of a potential buyout.
- We think CWT could be worth S$2.54/share in such a scenario, though it could take time to materialise as no potential buyer has been singled out.
- Underlying business momentum remains weak for logistics, but commodity marketing volumes appear to have stabilised.
- Maintain Hold and SOP-based target price of S$1.98.
■ Logistics remains soft, but new capacity in 1H17
- Logistics revenue continues to be soft, dragged down by lower commodity logistics contributions, while its warehouse and container yard in Tianjin was wiped out in a series of blasts. This was offset by better freight margins as CWT took the opportunity to defer buying rates as freight rates fell.
- Looking ahead, the catalyst will be the opening of the mega integrated logistics hub in 1H17. The new facility will add c.33% capacity to its current contract logistics warehouse space in Singapore.
■ Commodity marketing volume is unclear, but volatility is good
- 2015 saw the effect of lower commodity prices hitting CWT’s topline, though gross profit is a better indication of its traded volumes as it earns a locked-in spread on each trade.
- CWT also saw the impact of lower naphtha volumes and lower demand for copper concentrates in China, though the latter has somewhat stabilised in 3Q15.
- Going into 2016, there is little clarity on volumes, though continued volatility in commodity prices will allow CWT’s traders to lock in better profits.
■ Could be worth S$2.54 in a buyout scenario, but will still take time
- We estimate that previous logistics M&A transactions were carried out at 22.4x historical P/E. Applying this figure to CWT’s estimated FY14 logistics net profit, CWT’s shares could be worth up to S$2.54 apiece (implies 20x FY17 logistics P/E) just for the logistics business alone.
- We think the logistics business is CWT’s prized possession, and a motivated buyer would ascribe little value to the commodity marketing, financial services and engineering segments.
■ Potential bidders
- News sources report that potential bidders for CWT include PE firms Bain Capital, Blackstone, KKR, and Japanese logistics companies Japan Post and Nippon Express.
- According to Bloomberg, CWT’s controlling shareholder, C&P Holdings, the Loi family and directors of C&P Holdings have a combined 62.1% stake in CWT, hence a stake sale would trigger a general offer for all the shares.
- We continue to believe a buyout may take time to materialise, as CWT has not announced the start of any formal processes.
■ Maintain Hold
- We maintain our Hold call on CWT, with a SOP-based target price of S$1.98.
- We see a decent potential upside in a buyout scenario; however, we think that a buyout will still take time to materialise, and a longer wait could lead to some pressure on the share price in the near term.
Jessalynn CHEN
CIMB Securities
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http://research.itradecimb.com/
2015-12-09
CIMB Securities
SGX Stock
Analyst Report
1.98
Same
1.98
