Cogent Holdings Ltd - Phillip Securities 2017-11-28: Results Eclipsed By Ongoing Take-over Offer

Cogent Holdings Ltd - Phillip Securities 2017-11-28: Results Eclipsed By Ongoing Take-over Offer COGENT HOLDINGS LIMITED KJ9.SI

Cogent Holdings Ltd - Results Eclipsed By Ongoing Take-over Offer

  • Revenue and net profit were in line with our expectations.
  • Ongoing Voluntary Cash Offer of $1.02 from COSCO.
  • Offer Price is unjustifiably low.
  • Reiterate our $1.12 valuation and recommend shareholders to Reject the Offer.

The Positives

  • Better cost control helped to mitigate the YoY higher opex. Staff cost (largest cost component) and rental on leased premises (second largest cost component) were 2% and 5% YoY lower respectively.

The Negatives

  • YoY higher opex out-paced revenue growth, resulting in lower EBIT margin from 29.7% to 27.9%. Main contributors to the higher opex were 33% YoY higher depreciation (fourth largest cost component) due to commencement of certain container depot facilities since May 2017, and 15% YoY higher contract services (third largest cost component) mainly due to higher container repair and maintenance cost and increased security cost.
  • YoY lower NPAT, but it was within our expectation. The lower NPAT did not come as a surprise, as were already forecasting YoY higher opex for 3Q, after observing two sequential quarters of YoY higher opex in 1Q and 2Q.


  • The outlook is positive. Earnings growth in the pipeline to come from the Jurong Island Container Depot (JICD) project and to a lesser extent, the student hostel at 362 Holland Road. 
  • As described in our previous report, it is inevitable that Cogent becomes consolidated as a subsidiary of COSCO SHIPPING International (Singapore) Co. Ltd. (COSCO). Thereafter, potentially benefiting from COSCO’s intention to develop Cogent into a regional logistics player.

Reject the Offer; take partial profit and hold out for a failed delisting 

  • We reiterate our $1.12 valuation for Cogent, which is 10% higher than the Offer Price. As outlined in our previous report, the Offer Price of $1.02 is un-compelling, in our view. 
  • The Offer Price for Cogent is only 14.9x price-to-trailing-earnings, whereas the Offer Price for arguably Cogent's closest peer, Poh Tiong Choon Logistics Ltd, was at a much higher price-to-trailing-earnings multiple of 23.0x. 
  • Our recommendation remains unchanged – minority shareholders should take partial profit to avoid tying up capital while the Offer remains open and to Reject the Offer.
  • The remaining capital invested in Cogent will resemble a call option. If the delisting is successful, minority shareholders will receive $1.02 anyway. If the delisting fails, minority shareholders will remain shareholders of Cogent, a listed-subsidiary of COSCO.

Richard Leow CFA Phillip Securities | http://www.poems.com.sg/ 2017-11-28
Phillip Securities SGX Stock Analyst Report REJECT OFFER Maintain REJECT OFFER 1.120 Same 1.120