21-03-2013, 12:26 PM (This post was last modified: 21-03-2013, 01:17 PM by greengiraffe.)
A very comprehensive research IMO and tried to explain the black box nature of SCM business. Note CWT indicated that they have yet to integrate SCM with logistics business, ie more margin enhancement if any initiatives are successfully incorporated.
Vested
Standard Chartered Securities:
CWT
A deep value play
Key takeaways from a recent management update are:
(1) Robust run-rate of commodity supply chain
management (SCM) business on improving margins;
(2) stable logistics business; and (3) the appreciating
market value of warehouse assets in Singapore.
We raise our 2013E/14E EPS estimates by 11.8%/8.3% to
reflect stronger-than-expected growth in commodity SCM
business. We raise our SOTP-based PT to SGD 2.03 from
SGD 1.73.
Stripping out warehouse assets, CWT‟s underlying
logistics and SCM businesses trade at a mere 3x 2014E
EV/EBITDA. We believe CWT‟s share price is well
supported by its appreciating market value of warehouse
assets, which we estimate to be 60% of its enterprise
value. We maintain our Outperform rating.
OUTPERFORM (unchanged)
Deep value. We estimate that the RNAV of CWT‟s warehouse
assets already accounts for 78% of the company‟s market
capitalisation and 60% of enterprise value. We raise the RNAV
of its warehouse assets by 23% to SGD 695mn, mainly due to
the inclusion of CWT Cold Hub 2, which we expect to be
completed in the next 12 months. Excluding the market value of
its warehouse assets, the underlying logistics and commodity
SCM businesses currently trade at just 3x 2014E EV/EBITDA.
Commodity SCM to fuel growth. We expect the commodity
SCM business to remain the key growth driver, achieving profit
growth of 47% in 2013E, led by operational expansion in China
and Singapore. We expect EBIT margin to improve to 0.75% in
2013 from 0.72% in 2012, due to a reduction in start-up costs
last year. Our forecasts for this division are aligned with a sales
run-rate of in 4Q12.
Steady, cash-generative logistics business. We estimate the
logistics business‟ operating profit CAGR to be 12% over 2012-
15E, in tandem with warehouse capacity expansion (10%
CAGR over the same period) and higher rental yield.
Higher dividends. The group raised its DPS to 3 SGD cents in
2012, from 2.5 SGD cents in 2011. Management plans to
maintain a higher dividend of at least 3 SGD cents going
forward. We think this is positive for investors as it affirms: (1)
CWT‟s resilient cash-generative logistics business; and 2) that
its new commodity SCM business, albeit fast-growing, does not
drain the group‟s cash position, considering its self-funded
capability through trade financing and asset-light nature.
Keeping The Momentum Going
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.
TRAN SFO RMA TION UND ERW AY
WITH UNDERVALUED ASSETS
· Leading logistics provider in Asia
· Undervalued warehouse assets
· Commodity SCM to expand quickly
Global logistics player
CWT is a leading provider of logistics solutions for worldwide
customers in the commodities, chemical, petrochemical, marine, oil &
gas, defense and industrial sectors. A competitive edge is its global
logistics network which connects customers to around 200 direct ports
and 1,500 inland destinations. The group controls a number of
warehouse facilities in strategic locations in Asia and Europe, serving
as key regional distribution hubs and helping facilitate efficient
storage, movement and distribution of goods.
Expanding portfolio of warehouse assets
The group is currently developing two large warehouses in Singapore
– the Cold Hub 2 (TOP: 1Q2014) and Toh Guan Road East (TOP:
4Q2013). Upon completion, its owned warehouse space in Singapore
would increase by more than 50%, bringing about higher revenue
from warehouse rentals and other logistics services. Including the two
warehouses under construction, CWT owns more than 6m sqft of
warehouse space, estimated to be worth around S$800m. Given its
track record of monetizing its assets into REITs, future disposal gains
cannot be ruled out.
Commodity SCM to drive growth
We also expect the recently acquired Commodity SCM business to
scale up quickly, taking advantage of the group’s strong global
logistics network and reputation as an established commodity
collateral manager. Besides purely arranging logistics services for
other companies, it now aims to earn a spread by purchasing physical
commodities (e.g. copper and zinc) from the producers (e.g. mines)
before selling them to the consumers (e.g. smelters).
Initiate with BUY with S$2.08 fair value
We value CWT using sum-of-the-part methodology. For its logistics
and Commodity SCM businesses, we assigned PER multiples of 17x
and 12x, in-line with their respective peers. The warehouse portfolio is
estimated to be about S$800m. Accordingly, our fair value estimate is
S$2.08. Given the ample upside, we initiate coverage with BUY.
Deep value with growth upside from SCM
We hosted a one-day NDR in Singapore with CWT‟s CEO.
The key takeaways are: (1) supply chain management
(SCM) business to sustain robust growth and likely to
double its revenue this year; (2) logistics business enjoys
strong competitive edge and growth; (3) no plans for asset
sales this year; and (4) better dividends ahead.
We raise our 2013E/14E EPS by 7.7%/19.5% to reflect the
robust run-rate of the SCM business and bond issue.
Our positive view on CWT remains intact post-NDR. We
see growth catalysts from the SCM business.
Excluding warehouse assets, we estimate CWT‟s core
business to be trading at just 3.6x 2014E EV/EBITDA –
50% of its EV is supported by its warehouse assets.
We raise our PT to SGD 2.20 from SGD2.03.
OUTPERFORM (unchanged)
Growth upside from SCM. CWT expects its SCM business to
sustain robust growth in the next two years – targeting revenue
of SGD 8-10bn in 2013 (+81% YoY) and SGD 12-15bn in 2014
(+50% YoY). Longer term, CWT expects SCM revenue to
stabilise at SGD 20bn, with net profit margin improving to 1-
1.5% (from 0.8% currently) due to larger scale. We raise our
2013E EPS by 7.7% to factor in higher revenue from SCM in
line with the low end of management‟s guidance. We also raise
our 2014E EPS by 19.5% to factor in higher revenue from
SCM, but at a 20% discount to the low end of management‟s
target. We estimate that there could be an earnings upside of
12% in 2014, if CWT is able to deliver the low end of its
revenue target, and a 30% upside in 2014E, if it hits the high
end of its target.
Bond issue largely to finance warehouse expansions. CWT
recently issued SGD 100mn of six-year fixed-rate notes at 3.9%
under the SGD 500mn multi-currency debt issuance
programme. According to management, proceeds will be used
for warehouse expansion. The group is expanding two
warehouses, which could add about 1.3mn sqft, or +13%, of
warehouse space by 1Q14E. Further, the group believes there
is about 2.1mnsqm of warehouse space for redevelopment
(+11% of its warehouse space of 11mn sqft in 2014E).
Solid logistics business. According to management, CWT is
the largest warehouse operator in Singapore, benefiting from
higher industrial yields compared to the region. Occupancy
rates of its warehouses have always been 100%, with the bulk
of its customers from the petrochemicals industry. Management
is upbeat on industrial capital values and rentals in Singapore in
the long run.
er... when mother make money off the child - who do you think is better off?
Which is better - originator of REIT or the slow growing but always cash hungry REIT itself that always need to raise funds to fund yield accretive acquisitions?
To each its own - its your money, your choice, your decision depending on your risk/reward profile.
Vested
GG
(04-05-2013, 01:12 AM)Dividend Warrior Wrote: CWT good means CACHE also good???
(04-05-2013, 08:23 AM)greengiraffe Wrote: er... when mother make money off the child - who do you think is better off?
Which is better - originator of REIT or the slow growing but always cash hungry REIT itself that always need to raise funds to fund yield accretive acquisitions?
To each its own - its your money, your choice, your decision depending on your risk/reward profile.
CWT's triple division model has certainly charmed investors looking for hybrids - ended at a record of 1.775.
SCM division is a black box that investors have to keep blind faith with management's guidance.
Core logistics operations will always be the main pillar and here investors also have to rely on the guidance of management.
Both SCM and logistics have yet to fully integrate and hence the margins uplift especially for SCM will be sizable given that the turnover of the division is substantial and even a 0.5% margin improvement on turnover that runs into billions could have a huge impact on accounting profits.
REIT feeder asset light model is the one that analysts have a good feel and CWT is confidently telling the mkt that they have no plans to sell till 2014 - ie allowing the asset bubble to grow further before making the best out of any potential sale.
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