CWT Ltd - OCBC Investment 2016-05-06: 1Q16 Within Expectations

CWT Ltd - OCBC Investment 2016-05-06: 1Q16 Within Expectations CWT LIMITED C14.SI 


  • Improvement in logistics margin
  • Privatisation still a possible catalyst
  • Keep forecasts largely unchanged

Recorded one-off withholding taxes

  • CWT Limited’s (CWT) 1Q16 revenue decreased 14.0% YoY to S$1.88b, mainly attributable to lower commodity trading volume, especially in naphtha and a general drop in commodity prices amidst a downturn in commodity sector. 
  • However, the impact of the revenue decline on its PATMI was limited as 1Q16 gross profit margins (GPM) improved across its logistics (+1.7 ppt) segment helped by improvement in commodity logistics and Financial Services (+6.3 ppt) segment on better results in both brokerage and structured trade services. 
  • Even as commodity marketing’s gross profit was weighed down by unrealized mark-to-market losses, CWT’s overall GPM still rose 0.6 ppt to 4.5%. 
  • We also noted CWT recorded an S$4.2m one-off withholding taxes paid for foreign dividends received in 1Q16. 
  • Consequently, stripping out exceptional items, 1Q16 core PATMI declined 8.3% YoY to S$27.9m and formed 23.7% of our FY16 forecast; hence largely in line.

Mega logistics hub to complete by 1H17

  • Looking ahead, we believe commodity marketing will continue to be impacted by the volatility of commodity prices, and do not rule out more unrealized mark-to-market losses ahead. However, we expect the heavyweight contributor, CWT’s logistics segment, to help offset and stabilize the earnings outlook. 
  • The GPM improvement in logistics business recorded in 1Q16 is likely to sustain as we still expect occupancy at Pandan Logistics Hub to improve to more than 90% by 4Q16. 
  • Furthermore, over the longer-term, with the mega logistics hub still on track to complete by 2H17, we expect meaningful contribution from FY18 onwards to be a key growth driver. 
  • Meanwhile, we think one key catalyst for CWT is still the possibility of a potential privatisation occurring in the near-term. 
  • With CWT’s major shareholder, C&P Holdings, still undergoing business strategic review, a general offer could potentially be triggered if C&P sells its 32% stake in CWT. However, with no concrete details at this moment, we prefer not to speculate and wait for further clarity.

Maintain HOLD

  • With in-line 1Q16 results, we keep our forecasts unchanged for now. 
  • Maintain HOLD with the same FV estimate of S$1.95 (SOTP method).

Eugene Chua OCBC Securities | http://www.ocbcresearch.com/ 2016-05-06
OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 1.95 Same 1.95