CWT Limited - CIMB Research 2016-05-06: Core operations intact

CWT Limited - CIMB Research 2016-05-06: Core operations intact CWT LIMITED C14.SI 

CWT Limited - Core operations intact 

  • 1Q16 net profit missed expectations, at 20% of our FY16 forecast. The shortfall was mainly due to one-off tax of S$4.2m. 
  • No surprises on the core business, with 1Q16 operating profit in line at 28% of our full-year forecast (1Q is seasonally stronger). 
  • Maintain Hold and SOP-based target price of S$1.92, pending start of formal buyout. 

Core operating profit in line but net profit hit by one-off tax 

  • CWT’s 1Q16 net profit of S$23.2m (-12% qoq, -20% yoy) came in below expectations at just 20% of our FY16 forecast. 
  • The miss was due to: 
    1. S$4.2m withholding tax paid on dividends declared by an overseas subsidiary, 
    2. lower-than-expected interest income, and 
    3. lower associates’ contributions. 
  • Core operating profit was broadly in line at 28% of our full-year forecast (1Q is seasonally stronger, historically comprising 25-30% of full-year operating profit). 

Logistics in line, expect muted growth until 2H17 

  • Logistics revenue (S$207m) and gross profit (S$32.6m) were largely flat qoq in 1Q16. While 1Q16 logistics revenue was down 8% yoy due to lower freight rates, gross profit was up 4% yoy as margins expanded due to higher contribution from contract logistics versus freight logistics. 
  • CWT's 2.4m sq ft mega integrated logistics hub is slated for completion by 1H17. We expect muted revenue growth in the logistics segment until then. 

Commodity marketing incurred unrealised MTM losses that should be reversed in coming quarters 

  • Commodity marketing revenue of S$1.6m (-58% qoq, +1% yoy) dragged overall revenue in 1Q16 down due to the effects of lower commodity prices. However, gross profit (which we view as a better measure of traded volumes) was broadly within expectations. 
  • The segment saw unrealised mark-to-market (MTM) losses, as naphtha prices hit a new low in 1Q. However, we think the losses will be reversed in the coming quarters when the positions are closed. Recall that CWT’s trading positions are fully hedged and it does not take a view on commodity prices. 

Maintain Hold pending the start of formal buyout process 

  • We maintain our FY16-18 EPS forecasts, Hold call and SOP-based target price of S$1.92
  • CWT's share price remains supported by hopes of a buyout. We think that the share price will continue to trade sideways until CWT starts a formal buyout process, which could take some time.

Jessalynn CHEN CIMB Securities | http://research.itradecimb.com/ 2016-05-06
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 1.92 Same 1.92