Results Review, 10 November 2014
CWT Limited (CWT SP)
Buy (Maintained)
Transport - Logistics Market Cap: USD769m
Target Price: Price:
SGD2.00 SGD1.66 Macro Risks
Commodity Trading Business Margins Improve
Growth Value
CWT (CWT SP) Relative to Straits Times Index (RHS)
1.90
141
1.80
135
1.70
129
1.60
122
1.50
116
1.40
110
1.30
104
1.20
97
1.10 5 5 4 4 3 3 2 2 1 1
91
Sep-14
Jul-14
May-14
Mar-14
Jan-14
Source: Bloomberg
Avg Turnover (SGD/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (SGD) Free float (%) Share outstanding (m) Shareholders (%)
1.04m/0.82m 19.3 20.5 1.24 - 1.83 39 600
Sr. management & related Transamerica Investment Fidelity International
60.7 0.7 0.7
Share Performance (%)
Strong revenue growth. CWT’s 9M14 revenue jumped 121% YoY, with all segments reporting higher revenues. Revenue from financial services surged the most by 428% YoY to SGD169m, aided by rising trade services. Commodity marketing revenue soared 134% YoY to SGD11,045m due to higher trading volume. Logistics revenue continued to rise sequentially in 3Q14, with 9M14 revenue growing 12% YoY, driven by the addition of new warehouse space in 1Q14. Commodity marketing margins expand. 3Q14 commodity marketing revenue grew 3% QoQ and we expect the segment revenue to keep growing in 4Q14 amid a seasonal pickup in naphtha trading volume. Segment gross margins also expanded sequentially over the last two quarters to 0.94% in 3Q14 from 0.77% in 1Q14. As CWT builds confidence among its customers to move larger commodity trading volumes, we believe its margins should improve gradually over 20152016. New warehouses may boost margin. Among the two new warehouses that will be added by end-2014, the space at Singapore Wine Vault has been fully taken up and customers have committed to taking up 80% of the Pandan Logistics Centre. Warehouse space is the key growth driver in the high-margin logistics business segment and these new warehouses will boost CWT’s Singapore warehouse space by 40%. The logistics segment made up 45% of its 9M14 gross profit (GP) and fetched a higher GP margin of 17.6% vs a dismal 0.85% GP margin for the commodity marketing business, which only accounted for 35% of GP. Maintain BUY. We introduce 2016 EPS and roll forward our SGD2.00 TP to Sep 2015, offering a 20.5% upside. We apply a 9x P/E (vs 10x earlier) to rolling four-quarter EPS to account for the company’s potential slower growth over 2015-2016F.
YTD
1m
3m
6m
12m
Absolute
22.5
0.0
(0.3)
6.1
24.8
Forecasts and Valuations
Relative
18.6
(1.4)
0.4
4.4
22.0
Total turnover (SGDm)
Shekhar Jaiswal +65 6232 3894
[email protected]
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
5,397
9,097
16,291
17,782
18,877
Reported net profit (SGDm)
108
106
135
145
158
Recurring net profit (SGDm)
87
96
134
145
158
Recurring net profit growth (%)
57.0
10.3
40.3
8.1
8.6
Recurring EPS (SGD)
0.14
0.16
0.22
0.24
0.26
DPS (SGD)
0.03
0.03
0.04
0.05
0.05
Recurring P/E (x)
11.5
10.4
7.4
6.9
6.3
P/B (x)
1.71
1.51
1.29
1.12
0.98
P/CF (x) Dividend Yield (%)
na
na
4.49
na
6.94
1.5
1.8
2.1
2.7
EV/EBITDA (x)
11.7
18.3
11.2
10.3
9.1
Return on average equity (%)
20.4
17.1
18.9
17.5
16.5
Net debt to equity (%)
60.4
159.5
134.0
127.1
103.9
17.6
5.0
19.3
Our vs consensus EPS (adjusted) (%)
See important disclosures at the end of this report
3 . 2 0 . 2
0 0 . 3 0 0 CWT’s 9M14 net profit made up 81% of our estimate. While margins . 0 declined YoY due to higher contribution from low-margin commodity 0 trading business, 9M14 profit grew 66% YoY on strong revenue growth. 0 Despite concerns over slower trading volume growth amid an oversupplied copper market, we expect its new warehouses to provide stable growth and higher margins. We adjust EPS accordingly and roll forward our unchanged SGD2.00 TP (20.5% upside) to Sep 2015. BUY.
Nov-13
Vol m
Price Close
Source: Company data, OSK-DMG
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2.9
1
CWT Limited (CWT SP) 10 November 2014
Summary Of Results Figure 1: CWT’s 3Q14 results review unit
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
QoQ %
YoY %
Income statement Revenue
SGD m
1,478
1,729
2,220
3,670
4,536
3,695
3,767
2%
70%
Cost of revenue
SGD m
(1,407)
(1,667)
(2,159)
(3,572)
(4,450)
(3,605)
(3,678)
2%
70%
Gross profit
SGD m
71
62
61
98
86
90
89
-1%
46%
Other income
SGD m
1
2
1
5
2
0
1
222%
0%
Administrative expenses
SGD m
(39)
(44)
(39)
(46)
(39)
(41)
(44)
7%
13%
Other operating expenses
SGD m
(3)
(3)
(2)
(6)
(3)
(3)
(2)
-32%
39%
Operating income
SGD m
30
17
22
50
47
46
44
-5%
102%
Finance income (ex int inc)
SGD m
3
3
2
9
1
3
2
-35%
-32%
Finance expenses (ex int exp)
SGD m
(4)
(2)
(2)
(4)
(8)
(7)
(5)
-20%
161%
Interest income
SGD m
3
2
4
4
5
2
4
101%
12%
Interest expense
SGD m
(4)
(6)
(8)
(14)
(6)
(12)
(8)
-36%
-7%
Share of associates
SGD m
1
2
2
2
1
2
2
13%
3%
Share of JVs
SGD m
1
1
1
1
2
1
1
-3%
10%
Other income/(expense)
SGD m
0%
0%
Profit before tax
SGD m
39
13%
95%
Tax
SGD m
(4)
2
(1)
(5)
(5)
(5)
(1)
-87%
-45%
Profit after tax
SGD m
28
18
19
43
36
30
39
29%
102%
Minority Interest
SGD m
(1)
(0)
(0)
(1)
(1)
0
(1)
-953%
893%
Profit for equity holders
SGD m
27
18
19
42
35
30
38
24%
98%
Post tax significant income (asset sales etc)
SGD m
0
3
7
1
0
-63%
-88%
Post tax significant expense (disc'd ops etc)
SGD m
0%
0%
Profit for equity holders (clean)
SGD m
37
27%
126%
Depreciation & amortisation
SGD m
(2)
(1)
(3)
(0)
0
1
2
100%
-158%
EBITDA
SGD m
29
15
19
49
47
47
46
-3%
145%
Avg basic shares o/s (basic)
m
600
600
600
600
600
600
600
0%
0%
Core EPS (basic)
SGD
0.04
0.03
0.03
0.06
0.06
0.05
0.06
23%
120%
Gross margin
%
4.8%
3.6%
2.8%
2.7%
1.9%
2.4%
2.4%
Operating margin
%
2.1%
1.0%
1.0%
1.4%
1.0%
1.2%
1.2%
Net margin
%
1.8%
1.0%
0.9%
1.1%
0.8%
0.8%
1.0%
-
-
31
-
-
16
-
27
-
20
-
18
-
48
-
34
-
35
-
-
17
-
41
-
35
-
29
Margins
Segment revenue Logistics services
SGD m
198
202
204
195
218
223
236
6%
17%
Commodity marketing
SGD m
1,250
1,490
1,978
3,384
4,229
3,363
3,453
3%
132%
Engineering services
SGD m
24
27
21
57
41
40
27
-32%
0%
Financial services
SGD m
8
9
15
35
48
69
51
-26%
470%
Source: Company, OSK-DMG
Figure 2: CWT’s 9M14 vs our estimates 9M14
Old
%
2014F
achieved
Revenue
SGD m
11,998
14,993
80%
Gross profit
SGD m
265
361
73%
Profit after tax
SGD m
105
127
83%
Profit for equity holders (clean) SGD m
102
125
81%
EBITDA
139
183
76%
SGD m
Source: Company data, OSK-DMG
See important disclosures at the end of this report
2
CWT Limited (CWT SP) 10 November 2014 Figure 3: Commodity marketing remains the largest revenue contributor
Figure 4: Logistics segment revenue starting to improve
5,000
250
4,000
200
Title: Source: 62
61 150
1,000 840 945 841 803
1,978 1,557 1,2501,490 1,210
100
49
87
45
41
74
90
98
53 109
67
47
41
50
120
45
41
41
90
97
97
43
53
43
53
76
100 102 107
Logistics services (SGD m)
Commodity marketing (SGD m)
Freight logistics (SGD m)
Other revenue (SGD m)
Source: Company data
Figure 5: Gross margin were stable in 3Q14
Figure 6: Net margin improved in 3Q14
3.8% 3.8%
1.0%
2.8% 2.7%
3.0%
3Q14
2Q14
1.3% 1.3%
1.5%
3.6%
1.8%
Please fill in the values above to have them entered in y
1.6%
4.3%
4.0%
1Q14
Title: Source: 1.9%
1.8%
2.0%
4.8% 5.0%
2.3%
2.5%
6.0% 6.2%
6.0% 5.6%
4Q13
Commodity logistics (SGD m)
Logistics business (SGD m)
Source: Company data
7.0%
3Q13
2Q13
1Q13
4Q12
4Q11
3Q11
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
3Q11
-
61
3Q12
2,000
59
2Q12
4,229 3,3633,453 3,384
53
63
1Q12
3,000
76
75 78 Please fill in the values 64 66above to have them entered in y 59
2.4% 2.4% 1.9%
1.0%
1.0%
0.9% 0.8% 0.8%
0.7%
2.0% 0.5% 1.0%
Gross margin (%)
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
3Q11
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
0.0% 3Q11
0.0%
Net margin (%)
Source: Company data
Source: Company data
Figure 7: Adjusted for self-liquidating trade finance, leverage seems quite manageable
Figure 8: ROE to stabilise above the 16% level over forecast period
200% 150% 89%
76% 38%
50%
64%
48%
20.4%
118%
103%
20.0%
17.9%
Title: Source:
21.4%20.7%
14.4%
11.7% 10.6%
83%
22% 26%
39% 46%
0% 1%
16%
20.8%
17.7% 16.9% Please16.4% fill in the values above to have them entered in y 15.3% 14.3%
15.0%
48%
10.0%
23% 5.0%
-50%
Net debt/equity (%)
Net debt/equity (adjusted) (%)
Source: Company data, OSK-DMG
See important disclosures at the end of this report
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
0.0% 3Q11
-100%
3Q11
100%
25.0%
166% 162% 149%
Annualised ROE (%) Source: Company data
3
CWT Limited (CWT SP) 10 November 2014 Figure 9: CWT’s 1-year forward P/E based on core earnings (since new management took over)
Figure 10: CWT’s P/E band chart based on 1-year forward core earnings (since new management took over)
40.0
10.00
35.0
9.00
Title: Source:
8.00 30.0
Please fill in the values above to have them entered in y
7.00
25.0
6.00
20.0
5.00 4.00
15.0
3.00 10.0
2.00
5.0
1.00 -
Jan-04 P/E
Jan-06
Jan-08
Avg. P/E=10.6
Jan-10
Jan-12
-1 std=4.4
Jan-04
Jan-14 +1 std=16.7
Jan-06 CWT 20.5 x
Jan-08
Jan-10 3.4 x 29.1 x
Jan-12
Source: Bloomberg, OSK-DMG
Source: Bloomberg, OSK-DMG
Figure 11: CWT’s 1-year forward P/BV based on core earnings (since new management took over)
Figure 12: CWT’s 1-year forward P/BV vs ROE
3.5
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
Jan-14 12.0 x 37.6 x
Title: Source:
25%
20%
Please fill in the values above to have them entered in y 15%
10%
5%
-
Jan-04
Jan-06 P/BV
Jan-08 Avg. P/BV=1.1
Jan-10
Jan-12
-1 std=0.6
Source: Bloomberg, OSK-DMG
See important disclosures at the end of this report
Jan-14 +1 std=1.6
0% Jan-04
Jan-06
Jan-08
Jan-10 P/BV
Jan-12
Jan-14
ROE
Source: Bloomberg, Company data, OSK-DMG
4
CWT Limited (CWT SP) 10 November 2014
Financial Exhibits Profit & Loss (SGDm)
Dec-12
Dec-13
Dec-14F
Dec-15F
Total turnover
5,397
9,097
16,291
17,782
18,877
Cost of sales
(5,143)
(8,805)
(15,930)
(17,367)
(18,428)
Gross profit Gen & admin expenses Other operating costs
Dec-16F
254
292
362
415
450
(153)
(168)
(179)
(219)
(247)
18
(6)
(5)
(9)
(9)
Operating profit
118
118
177
187
193
Operating EBITDA
114
112
181
207
228
Depreciation of fixed assets
(25)
(25)
(31)
(34)
(35)
28
31
27
14
118
118
177
187
193
Net income from investments
7
10
12
12
17
Other recurring income
2
6
(10)
(9)
(9)
15
14
12
19
26
Amortisation of intangible assets Operating EBIT
Interest income
(0)
Interest expense
(23)
(33)
(39)
(43)
(46)
Pre-tax profit
118
116
153
166
180 (18)
Taxation
(9)
(8)
(14)
(17)
Minority interests
(1)
(2)
(3)
(4)
(5)
Profit after tax & minorities
108
106
135
145
158
Reported net profit
108
106
135
145
158
Recurring net profit
87
96
134
145
158
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
118
118
177
187
193
20
35
(203)
(74)
Source: Company data, OSK-DMG
Cash flow (SGDm) Operating profit Depreciation & amortisation Change in working capital Other operating cash flow Operating cash flow Tax paid
(4)
(7)
4
(273)
(484)
149
(21)
(7)
(180)
(379)
(95)
4
7
236
8
162
(8)
(8)
(14)
(17)
(18)
(188)
(387)
222
(9)
144
(60)
(179)
(114)
(40)
(20)
47
11
(12)
19
26
Cash flow from investing activities
(13)
(168)
(126)
(21)
6
Dividends paid
(15)
(18)
(21)
(27)
(29)
Cash flow from operations Capex Other investing cash flow
Increase in debt Other financing cash flow Cash flow from financing activities Cash at beginning of period Total cash generated
65
506
(82)
350
-
(28)
63
59
(43)
(46)
22
551
(43)
280
(75)
212
295
197
249
499
250
75
(179)
(4)
52
Forex effects
261
(94)
(1)
Implied cash at end of period
295
197
249
(0) 499
(0) 573
Source: Company data, OSK-DMG
See important disclosures at the end of this report
5
CWT Limited (CWT SP) 10 November 2014
Financial Exhibits Balance Sheet (SGDm)
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
Total cash and equivalents
295
197
249
499
573
Inventories
338
825
668
772
821
Accounts receivable
921
2,151
2,385
2,813
2,992
Other current assets Total current assets Total investments
37
106
122
122
122
1,590
3,280
3,424
4,207
4,508
51
58
61
61
61
Tangible fixed assets
314
495
574
580
565
Intangible assets
131
128
134
124
115
Total other assets
129
92
149
149
149
Total non-current assets
624
773
919
915
890
2,215
4,052
4,343
5,122
5,399
Short-term debt
580
1,116
871
1,221
1,221
Accounts payable
705
1,828
2,098
2,429
2,582
69
130
75
51
41
1,354
3,074
3,044
3,700
3,843 448
Total assets
Other current liabilities Total current liabilities Total long-term debt
86
177
448
448
Other liabilities
159
114
53
53
53
Total non-current liabilities
245
291
501
501
501
Total liabilities
1,600
3,365
3,545
4,201
4,345
Share capital
174
174
174
174
174
Retained earnings reserve
408
485
596
714
843
Shareholders' equity
583
660
770
888
1,017
28
28
Minority interests Other equity Total equity Total liabilities & equity
33 -
-
0
32 -
37 -
615
687
798
921
1,054
2,215
4,052
4,343
5,122
5,399
Source: Company data, OSK-DMG
Key Ratios (SGD)
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
Revenue growth (%)
109.2
68.6
79.1
9.2
6.2
Operating profit growth (%)
113.7
0.4
49.7
5.7
3.1
Net profit growth (%)
88.9
(1.8)
27.7
7.2
8.6
EPS growth (%)
87.3
(1.8)
27.7
7.2
8.6
Bv per share growth (%)
22.4
13.2
16.8
15.3
14.5
Operating margin (%)
2.2
1.3
1.1
1.1
1.0
Net profit margin (%)
2.0
1.2
0.8
0.8
0.8
Return on average assets (%)
5.7
3.4
3.2
3.1
3.0
Return on average equity (%)
20.4
17.1
18.9
17.5
16.5
Net debt to equity (%)
60.4
159.5
134.0
127.1
103.9
DPS
0.03
0.03
0.04
0.05
0.05
(0.31)
(0.64)
0.37
(0.01)
0.24
Recurrent cash flow per share Source: Company data, OSK-DMG
See important disclosures at the end of this report
6
CWT Limited (CWT SP) 10 November 2014
SWOT Analysis Proven earnings growth track record
Sudden spikes in freight rates could hurt margins
Stable income from the logistics business Highly scalable and fast-growing commodity marketing business with consistent earnings delivery
Increased competition in freight and commodity logistics business
Experienced management team
Well-placed to capitalise on growing intraAsia trade
Decline in warehouse property prices or rental yields
Commodity marketing volume is small compared to that of global commodity traders involved in similar commodities
Supply disruptions in commodities traded
Diversification of commodities traded
Susceptible to economic downturns, which could result in lower global trade volume Fast-growing commodity marketing business has large working capital requirements
P/E (x) vs EPS growth
P/BV (x) vs ROAE
40%
10
20%
-60%
0
-80%
P/E (x) (lhs)
Jan-16
-40%
2
Jan-15
4
Jan-14
-20%
Jan-13
0%
6
Jan-12
8
EPS growth (rhs)
Source: Company data, OSK-DMG
2
20%
2
15%
1
10%
1
5%
0
0%
P/B (x) (lhs)
Jan-16
60%
12
25%
Jan-15
14
3
Jan-14
80%
Jan-13
100%
16
Jan-12
18
Return on average equity (rhs)
Source: Company data, OSK-DMG
Company Profile CWT Limited (CWT) is a supply chain engineering company, which offers a holistic approach to logistics solutions backed by packaging expertise, engineering and channel management/financial capabilities. The company has 44 years of logistics heritage with more than 150 offices worldwide. It is the largest owner of warehousing space in Singapore and through its global freight forwarding network, it services niche sectors. With the acquisition of MRI Trading in 2011, CWT has also diversified into controlling and managing commodity supply chains (commodity marketing segment).
See important disclosures at the end of this report
7
CWT Limited (CWT SP) 10 November 2014
Recommendation Chart Price Close 1.90
1.70
2.00
Recommendations & Target Price
na
1.90
1.50
1.30 1.10 0.90 0.70 Buy 0.50 Nov-09
Neutral
Feb-11
Sell
Trading Buy
May-12
Take Prof it
Not Rated
Aug-13
Source: OSK-DMG, Bloomberg Date
Recommendation
2014-08-08
Buy
Target Price Price 2.00
1.69
2014-05-15
Buy
1.90
1.63
2014-05-05
Buy
1.90
1.50
Source: OSK-DMG, Bloomberg
See important disclosures at the end of this report
8
RHB Guide to Investment Ratings DMG & Partners Research Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share may10% exceed over 12 themonths next 3 months, however longer-term outlook remains uncertain Buy: Share price mayprice exceed over15% the next Neutral: Buy: ShareShare price price may fall within the 15% rangeover of +/the next 12 months Trading may exceed the10% nextover 3 months, however longer-term outlook remains uncertain Take Profit: Target been attained. accumulate lower Neutral: Share priceprice may has fall within the rangeLook of +/-to10% over theatnext 12 levels months Sell: may fall has by more 10% over next 12 months Take Share Profit:price Target price beenthan attained. Look the to accumulate at lower levels Not Rated: is not regular coverage Sell: Share Stock price may fallwithin by more thanresearch 10% over the next 12 months Not Rated: Stock is not within regular research coverage Disclosure & Disclaimer DISCLAIMERS All research is based on material compiled from data considered to be reliable at the time of writing, but RHB does not make any representation or warranty, express or implied, as & to Partners its accuracy, completeness or correctness. No distribution part of this only. reportIt is to be an offer or solicitation of an offer This research is issued by DMG Research Pte Ltd and it is for general does notconstrued have anyas regard to the specific investment to transact financial any securities or and financial instruments referred to herein otherwise. 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