CWT Limited - CIMB Research 2016-02-18: Higher dividends while waiting for buyout

CWT LIMITED C14.SI

CWT Limited - Higher dividends while waiting for buyout

4Q15 core net profit was slightly better than we expected. GP was in line, but bottom line was lifted by lower finance expenses/taxes. FY15 formed 105% of our full-year forecast.
Logistics was dragged by startup costs and poor demand for commodity logistics, while the less favored commodity marketing and financial services did well.

Final DPS of 6 Scts was declared, bringing total DPS to 9 Scts and div yield to 5%.
We maintain our Hold rating. We raise our FY16-17F EPS by 0.4-1.8%, but our SOP-based TP falls to S$1.92 due to a shift in profit mix.

CWT had a strong finish to the year, with 4Q15 core net profit of S$28.7m up 97% yoy. This was driven by better performance in the commodity marketing and financial services segments, which more than offset the fall in logistics and engineering contributions.
While gross profit was in line with our estimate, the 22% beat to our net profit forecast was led by lower finance expenses (-43% yoy) and lower taxes (-71% yoy), partially offset by higher administrative expenses (+23% yoy).

Excluding one-off items, FY15 PBT rose 2.4% yoy to S$140.2m. In comparison, logistics PBT was down 26% yoy to S$58.1m, primarily due to:
1. lower commodity logistics contributions amid a commodities downturn, and
2. startup costs for the megaintegrated logistics hub, which will be completed in 1H17.
Engineering services PBT fell 3% yoy to S$20.8m on fewer design and build projects completed during the year.

The less favored segments were the star in FY15. Commodity marketing PBT soared 123% yoy to S$24.1m, due to:
1. better margins on naphtha as price volatility created opportunities to make trading gains, and
2. higher copper concentrate volume.
Financial services PBT rose 37% yoy to S$33.4m on higher demand for derivatives brokerage and structured trade services in 2H15, which was partly driven by interest rate arbitrage.

CWT declared a second interim DPS of 6 Scts, bringing total DPS for the year to 9 Scts (FY14: 4 Scts). This implies a dividend payout ratio of 50%, up from 17-21% in prior years.
Management’s rationale for the higher payout was to return excess cash to investors in a year in which the company did not expand aggressively.
We view this as a signal that management is more confident of a buyout scenario.
CWT’s dividend yield is now 5%, which we view as attractive while waiting for a potential buyout.

We expect underlying earnings growth to be unexciting and flattish in the near term, amid the commodities rout (commodity logistics), lower freight rates (freight logistics), lack of new capacity (contract logistics), and lower demand for naphtha (commodity marketing).
The positives are higher dividends, completion of the mega logistics hub which we expect to contribute meaningfully in FY18, and a possible buyout.
We maintain our Hold call, but would turn more positive with the start of a formal buyout process.

Jessalynn CHEN CIMB Securities | http://research.itradecimb.com/ 2016-02-18

CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 1.92 Down 1.98