CWT Ltd

Kim Eng on 8 May 2012

The new era of profitability is here. 1Q12 results were beyond all expectations, with the company registering a recurring net profit of SGD24.9m in this quarter. Following the 4Q11 results, we had foretold that CWT will be entering a new era of sustainable profitability. We believe this set of numbers affirms this and more. To put the transformation in perspective, CWT’s recurring net profit had hovered around the SGD25m-SGD30m level for the past four years before FY2011.

MRI like a dream come true. The variance came largely from MRI commodity trading, which we believe has significantly outperformed earlier expectations. In its first six months of consolidation (1H11), MRI numbers were affected by shipment adjustment costs which were incurred prior to the acquisition. With these wound down, we think MRI may contribute about SGD50m to bottomline in FY12 vs earlier expectations of SGD30m.

Not a one-off quarter. Operational performance outside MRI continued their strength from last quarter, helped by increasing occupancy at new warehouses Pandan Logistics Hub and CWT Hub 3. On-going construction of the SGD135m AIMS REIT warehouse continued to boost profitability. Other businesses such as coal trading and commodity broking continue to be incubated for future profitability.

Sale-leaseback of Pandan Logistics Hub. The company also announced the sale-leaseback of the 326,000 Pandan Logistics Hub to Cache REIT for SGD66m. This will result in a gain of SGD34m of which SGD22.5m will be recorded in FY12 with the rest deferred. The transaction price was 12% higher than our earlier estimated RNAV, which shows our valuations are conservative. This will strengthen an already net cash balance sheet (excluding MRI) and provide even more opportunities for warehouse investments/ M&A activities.

Maintain BUY. The profit growth traction for CWT has been beyond all expectations but is still not reflected in the share price performance. We are now expect recurring net profit to hit at least SGD90m this year which was consensus’s earlier estimate for 2014F. With all cylinders firing, any variance would likely only come from business development start-up costs. We adjust our earnings upwards by 24-28% and maintain BUY with a higher SOTP TP of SGD2.01.