BUY | Target price: SGD1.90

Makes a minor acquisition to boost commodity trading business. CWT announced yesterday an acquisition of another commodity trading house, LN Metals International Limited (LN) for a total consideration of USD12.3m (SGD15.4m). This is a minor acquisition, aimed at growing its commodity trading business. While there is no immediate significant impact on earnings or balance sheet, we see this as another of CWT's measured steps toward building a commodity powerhouse.

Similar products as MRI. LN was established in 1998 and is an Associate Trade member of the London Metal Exchange. Its principal operating offices are in London and Beijing. In terms of products, we understand it is quite similar to MRI Trading, with volumes mainly in unfinished non-ferrous metals (Lead, copper, zinc). Other traded products include minor metals (nickel, tin and rare metals).

No immediate earnings, more for capabilities. The USD12.3m consideration was arrived at mainly on a book value basis, given that current profitability is not substantial due to a lack of scale. More importantly, this acquisition adds several key personnel to CWT as well as increased product volumes. We are optimistic this will bear earnings accretion 6-9 months down the road for CWT.

Clearer earnings segmentation could be a catalyst. The commodity trading business is a new division, with FY12 being the first full year of consolidation for MRI Trading. Currently, management does not reveal key data points such as volumes or segment earnings separately. However, in our recent discussions, management has shown willingness to do so eventually, which we believe could lead to greater investor confidence and a long-due re-rating.

Reiterating our SGD100m FY12 profit estimate; BUY. We continue to see significant value in this growth stock. Warehouse and REIT units form close to $1.00/ share. Investors are paying very little for the largest operator of ramp-up warehouses in Singapore and a growing commodity trading business. We reiterate our SGD100m FY12 profit estimate (excluding warehouse divestment gain), upgrade FY13-FY14F earnings by 3-7% and maintain BUY with SOTP TP of $1.90.

Source: Maybank Kim Eng Research - 19 Sep 2012