CWT Ltd - OCBC Investment 2017-02-27: Core FY16 missed our expectations

CWT LIMITED C14.SI

CWT Ltd - Core FY16 missed our expectations

CWT Limited’s (CWT) FY16 revenue decreased 6.8% to S$9.25b, on lower contributions from:
1. logistics services (-4.2%) as freight and general logistics were affected by weaker business sentiment and slower trade flow while warehousing logistics improved with optimal utilisation,
2. commodity marketing (-7.2%) on lower commodity trading volume notably in naphtha and softer average prices, and
3. engineering services (-8.0%) due to fewer build-and-design projects handled during FY16. As a result, gross profit fell 4.6% to S$320.8m.
Consequently, even as operating expenses fell 3.1% to S$203.4m, profit before tax and PATMI fell 20.4% and 32.5% to S$104.8m and S$73.6m, respectively.
However, CWT recorded exceptional costs in FY16 arising from an ongoing project, of which 60% of it is accrued cost (payable only upon success of project) as well as withholding tax of S$7.6m incurred due to dividends from a foreign subsidiary.
Stripping out these one-off items, CWT’s FY16 core PATMI missed our expectations as it fell 25.7% to S$81.3m, and formed 88% of our forecast.
CWT has also proposed a final dividend of 3 S-cents for FY16.

Looking ahead, we expect weakness from its commodity marketing segment to persist on weak volume and soft prices. However, we expect the other heavyweight contributor, CWT’s logistics business, to provide the stability, and possibly growth from 2H17 onwards with the expected completion of its mega logistics hub.
Level 1 & level 2 of the warehouse has already obtained TOP on 16 Feb 17. We also expect CWT’s gross margin to remain stable ahead. In addition, we expect CWT’s financial services to register growth in FY17 while contributions from engineering services to remain flattish.

Despite lower-than-expected FY16 results, as we roll-forward valuations to base on FY17F forecasts (SOTP method), our FV increases slightly from S$1.90 to S$1.95. Maintain HOLD.

Eugene Chua OCBC Investment | http://www.ocbcresearch.com/ 2017-02-27

OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 1.950 Up 1.900