In-line with market expectations. 3Q12 results were in-line with market expectations, though it fell short of ours. Profit was padded by the expected SGD22.6m gain from the sale of 49 Pandan Road warehouse which was completed this quarter. Recurring net profit came in at SGD17.7m, bringing 9M12 recurring net profit to SGD63.4m.

Commodity trading fell short, but more accounting than operational. Profit from this division fell short of our expectations, and was below the run-rate for the two previous quarters. However, this is more of an accounting issue than operational issue and we expect next quarter’s run-rate to normalize.

Paper losses on future hedges. In its commodity trading business, CWT hedges price risk through the futures market. During this quarter, the rising base metal prices meant these hedges incurred paper losses. Operationally, these losses will be compensated by gains of the physical trade delivery, or if prices reverse before then. However, unlike more established commodity traders, CWT does not use cashflow accounting in its reporting. This means they recognize unrealized losses on future hedges but can only recognize gains on physical trade upon delivery. We therefore expect flow-through positive gains in the next 1-2 quarters.

Warehousing business continue to thrive. Commodity logistics business (Unlike trading, CWT is a logistics service provider in this business segment) was also below-par, due to the lower crop harvests in Africa. Its warehousing business however continues to thrive, we understand with positive rental increases this year and almost full occupancy at all its warehouses.

Profit not up to par but still focus on value; BUY. We recognize that profit from commodity trading may show volatility, but still see the structural growth in this business over the medium-term, coming from a very low base. We also see huge value on CWT’s balance sheet; warehouse and financial units now make up SGD1.07/ share following the increase in value of warehouses and REIT units. We maintain BUY, with a SOTP TP of SGD1.77.

Source: Maybank Kim Eng Research - 09 Nov 2012