(10-08-2013, 07:27 PM)CY09 Wrote: Decided to see CWT's financials after seeing it at yesterday's NDP contingent.
A few observations: 1) It is indeed growing as shown by revenue growth; 2) The company has been expanding and using up a lot of cash resulting in increased borrowings. 3) the company is highly geared with a debt to asset ratio of 76%.
Hence is CWT that good as an investment? It might be if its commodities business pick up.Seeing the way it has been growing, it is similar to Noble or Olam to me in terms of gearing. Any other views?
The difference is CWT various business has synergies with each other. Its rare for a commodity trader to provide value add services from everything down the supply chain to the warehousing and clearing.
CWT also has a stable engineering division to depend on for steady cashflow and profits.
i thought so too after all the cheering suddenly went quiet, if 1.60-1.80 was a good buy, then 1.25 should be a screaming buy. but how come everyone's so quiet
Undervalued logistics play
Leading logistics player in Singapore with global
presence in commodity logistics and marketing
13% EPS CAGR over FY13-15F, driven by logistics
and commodity marketing segments
Undervalued at just 7.2x FY14 PE and 1x FY14
P/BV vis-a-vis peers and historical trading bands
Initiate with a BUY and SOTP-based TP of S$1.82,
which translates to c. 10x FY14 PE
Growing player in Logistics and Commodity Marketing.
Logistics services, which include freight logistics, warehouse &
contract logistics and commodity logistics, accounts for over
60% of CWT’s core earnings while commodity marketing
accounts for c. 20%. The rest is contributed by Engineering
Services (15%) and Financial Services. Core profit grew from
S$22m in 2008 to S$95m in 2013, a CAGR of 34%.
Twins engines to drive firm core earnings growth. The
addition of 2m sqf of warehouse space in Singapore in 2014
should drive the logistics segment’s growth while the move
into new energy products such as naphtha should expand the
commodity marketing’s segment contribution to the Group.
Core profit is projected to grow from S$95m in FY13 to
S$108m in FY14F and S$122m in FY15F.
Trading at deep discount to peers and at -1 SD in terms
of PE and P/BV; BUY. The stock is trading at just 7.2x FY14F
PE, which is a substantial discount to its listed, albeit larger,
logistics (17.4x PE) and commodity trading (13x PE) peers.
Our S$1.82 TP is based on a 20% discount to the total value
of its various businesses of c.S$2.27 per share.
Key Risk. The perceived higher risk of carrying more working
capital and self-liquidating facilities from the commodity
marketing business could affect investors’ perception of the
Group’s balance sheet strength and risk profile.
Trading ambition
Written by The Edge
Wednesday, 19 March 2014 07:40
Loi Pok Yen, CEO of logistics services provider CWT, doubled its earnings in the past two years by moving into commodities supply management. Yet, the company’s stock is trading at a discount to established players in the same field. Is this an opportunity for investors?
The following is a report from OCBC Security this morning.
CWT Ltd: Unfairly penalised, undervalued stock
Prices fully hedged in Commodity SCM
+38% GFA to drive Logistics’ 16% CAGR
Higher fair value estimate of S$01.87
Rising fair value estimate to S$1.87
We maintain our BUY but derive a new fair
value estimate of S$1.87 (previous S$1.68)
via SOTP. The counter is trading at 6.4x
FY14F PER, representing a steep discount to
its peer Kerry Logistics Network (x19.1 PER).
We think this is due to over-estimation of
risks in Commodity SCM and lack of clarity
on earnings growth ahead. Furthermore, we
believe our valuation is conservative on the
following counts: 1) each business segment
uses a below-average PER, 2) value of
warehouse portfolio derived excludes
overseas warehouses, and 3) assumed psf
price is at 10% discount to similar
warehouses.
Misperceived risks about Commodity
SCM
We understand from management meeting
that CWT fully hedges prices in its
Commodity SCM business, rendering the
trades back-to-back and eliminating risk of
losses through adverse price movements. As
CWT makes a fixed premium on a per-weight
trading basis, its results are not likely to be
correlated to commodity price movements.
In addition, we think the sub-1% profit
margin is not a concern as the returns are
magnified through leverage (10.3x in FY13),
yielding a reasonable 7.3% ROE.
Nevertheless, volatility in earnings is likely to
come from energy products which are
opportunistic in nature as compared to nonferrous
which is more towards long-term
contracts. In terms of counterparty risk, we
think it is reduced, though not eliminated,
through dealing with mainly state-owned
companies and MNCs. Overall, we think
Commodity SCM business is less risky than
perceived while we expect FY14 core
earnings to come in higher (+%64 to
S$34m) as energy products make a full-year
contribution. Our estimation is well within
management’s guidance that normalised
earnings are between S$20m to S$50m.
New and redeveloped warehouses drive
to Logistics business’ growth Three redeveloped/new warehouses will
receive TOP in FY14. Collectively, the trio will
increase CWT’s portfolio’s total GFA by 38%
to 7.2m sq ft, which we estimate to deliver a
substantial 16% CAGR in Logistics’ core
earnings over FY14-FY15. (Yap Kim Leng)
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