CWT

Kim Eng on 12 Apr 2013

Key takeaways from luncheon. We hosted a luncheon for CWT's CEO, Mr Loi Pok Yen yesterday, which was very well-received by institutional investors. Encouragingly, many attendees were new to the company, which we believe is a testament to the stock’s increasing appeal to institutions, as profit base grows and stock liquidity improves. With a multi-year structural growth story, we expect to see further rerating to the stock, which has already out-performed the STI by 23.5% ytd.

Warehousing supply coming on stream. On the Singapore warehousing front, management expects to see significant supply of 2- 3m sqf of new space coming on stream over the next twelve months. This will come mainly from Mapletree Logistics, YCH Group (privatelyowned logistics firm based in Singapore) and Cogent Holdings. Nonetheless, yields will remain sufficiently attractive for CWT to continue developing warehouses should land opportunities arise.

Confident of growing commodity trading business. Management remains confident of organic volume growth in its commodity trading business, with volumes targeted to double this year. Last year’s margins were impacted by start-up costs such as new hires. On top of that, margins should also pick up on operating leverage as volumes expand this year. CWT has a distinct competitive advantage in this business, being able to combine its physical infrastructure expertise with trading know-how.

Warehouse portfolio is a treasure trove. Management concurred that there is significant value in its warehouse portfolio, which we estimate at SGD758m or SGD1.25/ share. This only takes into account  current market values and excludes any redevelopment potential of CWT’s land bank or older warehouses which can be redeveloped. We expect further monetization of warehouses next year.

Maintain BUY. While several commodity traders such as Glencore saw profits drop in the last twelve months, it is important to distinguish that these were mainly impacted by upstream operations rather than supply chain business. We maintain our BUY recommendation, with a SOTP TP of SGD2.05, for 30% upside from current levels.