20131128-Maybank_KERPL-CWT_Ltd_Downside_risk_capped；reiterate_BUY_11页_602kb

CWT Ltd Summary

Core Information

• Company: CWT Ltd
• Sector: Logistics and commodity trading
• Share Price (SGD): 1.26
• Target Price (SGD): 1.47 (from 1.90)
• Shares Issued (m): 600.3
• Market Cap (USD m): 607.6
• 3-mth Avg Daily Turnover (USD m): 0.4
• ST Index: 3,186.37
• Free float (%): 55.7
• Major Shareholders: C&P Holdings and Mgmt (55%)

Key Indicators

Indicator	Value
ROE (%)	14.1
Net gearing (%)	60
NTA/share (SGD)	1.03
Interest cover (x)	3.3

Performance Overview

• 52-week High/Low (SGD): 1.83 / 1.205
• 1-mth (%): -8.6
• 3-mth (%): 0.8
• 6-mth (%): -28.0
• 1-yr (%): 2.0
• YTD (%): 3.7

Investment Recommendation

• Recommendation: Buy (unchanged)
• Reasoning: Downside risk is capped; value has emerged after a 28% drop in the past six months. The logistics business is stable and cash-generative, accounting for over 55% of net profit. The company is undervalued with a price target of SGD1.47, implying 8.8x FY14 P/E and a 16% upside.

Logistics Business

• Description: CWT provides integrated logistics solutions across various sectors. The logistics business contributes 12% to group revenue but over 55% to net profit.
• Growth Drivers:
  • 8.4% increase in warehouse rental rate
  • 25.7% capital value gain in Singapore
  • New warehouses to add 20% to total warehouse area:
    • Toh Guan East (600,000 sq ft by 4Q13)
    • Cold Hub 2 (725,000 sq ft by 1Q14)
    • Pandan Avenue (640,000 sq ft by 4Q14)
• Expected Growth:
  • Average 5.7% revenue growth and 8.4% bottom line growth for FY14-15
  • Contract and container logistics expected to deliver 10% growth

Commodity Trading Business

• Description: CWT trades in base metal concentrates (copper, zinc, lead) and energy products (naphtha, diesel, gasoline)
• Short-Term Outlook:
  • Expected short-term volatility
  • Copper trading margin likely to stay low due to low price volatility and tight credit environment in China
  • SGD4m FX loss in 3Q13 from Mongolia diesel trading
• Long-Term Outlook:
  • Expected 20% annual revenue growth for FY14-15 due to diversification of supply and trade
  • Synergies from integration with logistics business
  • Higher TC/RC may stimulate demand for copper concentrate

Valuation Analysis

• Warehouse Portfolio Value (SGD m): 758.0
• Market Cap (SGD m): 607.6 (99% of warehouse portfolio)
• Enterprise Value (SGD m): 602.9 (based on 8x EV/EBITDA)
• Valuation Metrics:
  • 6x FY14 EV/EBITDA for remaining business (discounted compared to Noble at 8x)
  • 7.6x FY14 P/E (below historical average)
  • 1.1x FY14 P/BV (also below historical average)
• Price Target (SGD1.47): Based on Sum of the Parts (SOTP) methodology, implying 8.8x FY14 P/E and 16% upside

Financial Highlights

• Revenue (FY DEC):
  • 2011: 2579.7
  • 2012: 5397.0
  • 2013F: 6560.5
  • 2014F: 7756.7
  • 2015F: 9186.5
• EBITDA (FY DEC):
  • 2011: 50.8
  • 2012: 98.7
  • 2013F: 104.4
  • 2014F: 128.4
  • 2015F: 169.3
• Recurring Net Profit (FY DEC):
  • 2011: 50.3
  • 2012: 85.3
  • 2013F: 81.6
  • 2014F: 100.7
  • 2015F: 115.3
• Recurring EPS (SG cents):
  • 2011: 8.4
  • 2012: 14.2
  • 2013F: 13.6
  • 2014F: 16.8
  • 2015F: 19.2
• DPS (SG cents):
  • 2011: 2.5
  • 2012: 3.0
  • 2013F: 2.7
  • 2014F: 3.4
  • 2015F: 3.8
• Dividend Yield (%):
  • 2011: 2.0
  • 2012: 2.4
  • 2013F: 2.1
  • 2014F: 2.6
  • 2015F: 3.0

Key Financial Ratios

Ratio	2011	2012	2013F	2014F	2015F
Sales Growth (%)	245.3%	109.2%	21.6%	18.2%	18.4%
Operating Profit Growth (%)	-69.8%	113.7%	-13.1%	22.3%	15.9%
EBITDA Growth (%)	74.1%	94.0%	5.8%	23.0%	31.8%
Recurring Net Profit Growth (%)	68.4%	69.6%	-4.3%	23.3%	14.5%
ROA (%)	3.7	4.9	3.1	3.3	3.3
ROE (%)	12.0	18.7	12.7	13.9	14.1
Gross Debt/Equity (%)	82.7	115.3	139.9	152.0	159.3
Net Debt/Equity (%)	38.1	64.3	89.6	91.3	90.6
Interest Coverage (x)	3.4	4.1	2.5	2.8	2.8
Current Ratio (x)	1.2	1.2	1.1	1.1	1.1
Quick Ratio (x)	1.0	0.9	0.9	0.9	0.9

Summary of Valuation

• Sum of the Parts Valuation:
  • Financial Assets (Cache REIT & Cambridge REIT): 85.3 SGDm (0.14 SGD/share)
  • Warehouse Portfolio: 758.0 SGDm (1.26 SGD/share)
  • Less Redevelopment Cost: -20.0 SGDm (-0.03 SGD/share)
  • Estimated FY14 EBITDA (excluding warehouse rental earnings): 75.4 SGDm
  • 8x EV/EBITDA: 602.9 SGDm (1.00 SGD/share)
  • Net Debt: -546.7 SGDm (-0.91 SGD/share)
  • Total SOTP Valuation: 879.5 SGDm (1.47 SGD/share)

Key Takeaways

• Stable and Cash-Generating Logistics Business: Accounts for over 55% of net profit and continues to grow with a 8.4% increase in rental rates and 25.7% capital value gain in Singapore.
• Undervalued: Warehouse portfolio valued at 758 SGDm represents 99% of market cap and 55% of enterprise value. Remaining business is valued at 6x FY14 EV/EBITDA, which is lower than peer Noble at 8x.
• Commodity Trading Volatility: Expected short-term volatility, but potential for growth and synergies with logistics.
• Price Target (SGD1.47): Based on SOTP, implying 8.8x P/E and 16% upside.
• New Warehouse Capacity: Will add 20% to total warehouse area, driven by growth in logistics business.

Conclusion

CWT Ltd is a stable, cash-generative company with a strong logistics business and undervalued assets. Despite short-term challenges in commodity trading, the long-term outlook is positive due to potential synergies and growth. The price target of SGD1.47 reflects a 16% upside and a conservative valuation, providing a buffer against potential capital depreciation.