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CWT Limited - Logistics business undervalued
Target S$1.49 (Long Term: Out Perform)
CWT
has been de-rated significantly since its 3Q13 results disappointment.
We believe its recent weakness offers a buying opportunity. CWT has
recurring earnings from logistics to counterbalance swings in its
trading earnings, in our view. We expect earnings growth from its
logistics business to overshadow poor trading profits in FY14. We
upgrade the stock from Neutral to Outperform, with an unchanged target
price based on 9.1x CY15 P/E (its mean post-MRI acquisition). Catalysts
are expected from the opening of new warehouses in FY14-15 and a
recovery in soft commodities logistics.
We
expect earnings growth from its logistics business to overshadow poor
trading profits in FY14. We upgrade the stock from Neutral to
Outperform, with an unchanged target price based on 9.1x CY15 P/E (its
mean post-MRI acquisition). Catalysts are expected from the opening of
new warehouses in FY14-15 and a recovery in soft commodities logistics.
What Happened
CWT's share price has fallen from S$1.40 on 6 Nov prior to the release of its 3Q results to S$1.27, as investors reacted to weakness in its trading segment (MRI), which barely turned profitable. MRI's weakness stemmed from: 1) thinning margins as a result of low trading volatility and 2) rising finance costs to fund bigger trade volumes as CWT built up its naphtha portfolio. CWT also pared down its stakes in CACHE SP, AAREIT SP and CREIT SP, which the market viewed negatively as CWT has given up a stable stream of income.
What We Think
Despite poor trading profits, we project 8% earnings growth for FY14 as its logistics operations should that its core logistics business could be worth up to S$832m on a standalone basis, which implies a share price of S$1.39 (9% upside from current levels).
What You Should Do
We believe the stock has been oversold. It is trading at 0.5 s.d. below its historical mean P/E of 9.1x post-MRI acquisition. CWT used to trade at a mean P/E of 9.4x before it bought MRI. Investors never really liked MRI and the market merely ascribed a mean P/E of 5.4x to MRI even when its earnings peaked. Of our S$1.49 target price, 93% comes from CWT's old logistics business. As the stock is trading even below our appraised value for its stable logistics business, we believe there is a buying opportunity
What Happened
CWT's share price has fallen from S$1.40 on 6 Nov prior to the release of its 3Q results to S$1.27, as investors reacted to weakness in its trading segment (MRI), which barely turned profitable. MRI's weakness stemmed from: 1) thinning margins as a result of low trading volatility and 2) rising finance costs to fund bigger trade volumes as CWT built up its naphtha portfolio. CWT also pared down its stakes in CACHE SP, AAREIT SP and CREIT SP, which the market viewed negatively as CWT has given up a stable stream of income.
What We Think
Despite poor trading profits, we project 8% earnings growth for FY14 as its logistics operations should that its core logistics business could be worth up to S$832m on a standalone basis, which implies a share price of S$1.39 (9% upside from current levels).
What You Should Do
We believe the stock has been oversold. It is trading at 0.5 s.d. below its historical mean P/E of 9.1x post-MRI acquisition. CWT used to trade at a mean P/E of 9.4x before it bought MRI. Investors never really liked MRI and the market merely ascribed a mean P/E of 5.4x to MRI even when its earnings peaked. Of our S$1.49 target price, 93% comes from CWT's old logistics business. As the stock is trading even below our appraised value for its stable logistics business, we believe there is a buying opportunity
CWT Ltd - Downside risk capped reiterate BUY
Author: kimeng | Publish date: Fri, 29 Nov 08:49
Transfer coverage with BUY. CWT?s share price has dropped by 28% in the past six months (as earnings disappointed) and we believe value has emerged. We expect some short-term earnings volatility from commodity logistics and commodity trading businesses. Its warehouse portfolios ? worth as much as current market capitalization ? should provide a strong support to the share price. We like CWT for its stable and cash-generative logistics business, which account for more than 55% of PATMI. We also expect its commodity trading business (40% of PATMI) to derive synergies from its existing logistics capability. Reiterate BUY with SGD1.47 TP, based on SoTP.
Logistics business a gem. YTD logistics business continued to grow steadily on the back of an 8.4% rise in warehouse rental rate. In the next two years, growth will primarily be driven by capacity increase (2m sq ft), which should help to offset any potential compression in rental rates. The three new warehouses (coming in in stages) will add around 20% to total warehouse area.
Commodity trading to generate more synergies in the long run. We see some short-term volatility in commodity trading but expect some improvement in copper trading next year. Furthermore, we expect more synergies and margin enhancements if CWT could integrate its commodity trading with its existing logistics capability. We forecast an average 20% annual revenue growth in commodity trading for FY14-15 driven by the diversification of supply sources and geographic trade flows.
Undemanding valuation. CWT?s warehouse portfolio, which we value at SGD758m, represents 99% of current market cap and 55% of enterprise value. At current price, CWT?s remaining business is valued at 6x FY14 EV/EBITDA, which is at a discount to that of its closest peer Noble (8x EV/EBITDA). Our price target implies 8.8x FY14 P/E and provides a 16% upside.
...last: $1.27...
...pre-closing last done at $1.255. 100+ lots done at 5.04pm, $1.290.
...next, lets see can it go above $1.300
Rebounded today.
bishan22 ( Date: 12-Nov-2013 16:39) Posted:
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Just short, don't scared.
Rosesyrup ( Date: 12-Nov-2013 12:30) Posted:
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Waiting..............
bishan22 ( Date: 07-Nov-2013 09:33) Posted:
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This one really falling knives.
Trio got chance to go up.
Even if it lucky lucky saved by white knight, this one will still go down and stay there for years.
Rosesyrup ( Date: 10-Nov-2013 22:48) Posted:
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Ok done...TP is out: $0.22.
Still waiting for clearance to be able to publish the report.
Meanwhile anyone interest can leave me a PM which include your email address ONLY. Because the report will be in PDF.
Rosesyrup ( Date: 08-Nov-2013 04:07) Posted:
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Buy n park when price is low n steady. Wait.
Shirleyfong88888 ( Date: 07-Nov-2013 12:04) Posted:
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Just the beginning of an end.
Hence the title of my report:
The End To 2 Years Of 'Miracle'
Nevertheless, I disagree that fell in profit is due to adminstrative cost. There are much bigger problems.
Source: http://www.fool.sg/2013/11/07/three-shares-that-lost-to-the-market-today-24/
Finally, we have CWT (SGX: C14), which dropped 5% to S$1.33 after releasing its third quarter earnings yesterday evening. The company, a logistics solutions provider, saw its quarterly profits get slashed by 53% to S$19m compared to a year ago despite a 52% jump in revenue to S$2.2b.
The shrinking profit margins could be attributed mainly to increases in administrative expenses (due to higher salaries and business expansion) and finance costs.
Despite the ostensibly poorer profit figures, CWT?s chief executive Loi Pok Yen commented that ?[the company] had achieved decent financial results this quarter, which mirror the ongoing execution of [its] business model.?
Goodluck. Try to get out before next year.
Rosesyrup ( Date: 06-Nov-2013 19:36) Posted:
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Ya. Low volume counter. Married and divorced many times. Got dividend too. Hahaha. Good luck.
Shirleyfong88888 ( Date: 07-Nov-2013 12:04) Posted:
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U also watching?
Gd counter but not many ppl buying to push up pricing......😊
Gd counter but not many ppl buying to push up pricing......😊
bishan22 ( Date: 07-Nov-2013 09:33) Posted:
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Can I see u at 1.20???
Cut at 1.38
Okieeee
Rosesyrup ( Date: 07-Nov-2013 02:32) Posted:
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You will find out when I publish the report. Nothing much to disclose or discuss for now.
Instead of making the assumption of a kind-hearted Rosesyrup, you can assume that I have already taken 'appropriate' position on this counter.
yummygd ( Date: 06-Nov-2013 23:27) Posted:
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Oh u meant the secure loan repayable in a year? That is bigger than its current cash flow? Well thats for the company to figure it out. N i doubt e award winning ceo n coo are that dumb. But thanks for e heads up. My cut loss is set at 1.36 n my bought price at 1.385 hopefully this company gets to run a little n hit my TP of 1.55 . Perhaps Rosesyrup is being kind hearted n just wanted to warn others to get out n didnt mean to imply she shorted. Who knows. Anyways good luck to us who r vested. Good nite.
Rosesyrup ( Date: 06-Nov-2013 19:36) Posted:
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See again rosesyrup telling me to leave this page.
If really let market decide, why do you even bother to post so many lines here just to shut me up?
Whether anyone considering my views or not, it is their freedom. Similarly I have the freedom to express my view and most importantly what matter is that I am not making unsubstantiated claims.
If you ever feel bother by my right and freedom, you may choose to leave this forum. The focus here is on CWT not you or me so this shall be my final response to this side-tracking argument.
Goodluck.
Terminator4ever ( Date: 06-Nov-2013 17:32) Posted:
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