Profit upside still substantial from here. CWT registered recurring net profit of SGD85.3m in FY12 (excluding gain on warehouse divestment of SGD22.6m). This is a substantial 70% yoy growth, which validates our earlier investment thesis that this is a multi-fold structural growth story. Yet, we think this is just the beginning, given that FY12 was the first full-year contribution from commodity trading.

Volume gains in commodity trading will drive bottom-line in FY13. We estimate this segment contributed 40% of recurring profit in FY12. Given the scalability of the business, this will continue to be a major driver of profit over the next five years. Management’s near-term target is to double volume, which is reasonable given latest quarterly run-rate growth. Notably, Q4 segment revenue was up 66% yoy and 28% qoq.

Operating leverage should kick in. Last year, the bottomline in commodity trading was hampered by expansion start-up cost such as overheads and new hires. We understand that insufficient scale in new offices (China and Singapore), as well as new products such as coal and naptha means they are not bottom line-positive yet, which should change in FY13 as volume ramps up.

Warehouse rental rates on the rise. CWT is one of the largest operators of ramp-up warehouses in Singapore, and will benefit from the rise in rental rates on the back of increasing capital values. We estimate rates have surged around 12% over the past twelve months, which should feed into profit. This year, CWT is currently developing two warehouses, Cold Hub 2 and Distripark @Toh Guan East, which will be completed by end-2013 and will add around 18% to total Singapore warehouse space under management.

Reiterate BUY. We see significant value, with REIT units and warehouse portfolio alone worth SGD1.20/ share. While net gearing shows 65%, the debt is mostly trade-financing related to commodity trading, which are non-recourse to CWT. Excluding these, CWT has a net cash position of SGD79m. We use a more conservative 5x EBITDA to value its operating business, given the overall de-rating of commodity traders, but still derive a higher SOTP TP of SGD2.05, for 46% upside.

Source: Maybank Kim Eng Research - 07 Mar 2013