• 1Q14 results beat street’s estimates
• Financial Services a new growth area
• Higher fair value estimate of S$1.92

Strong 1Q14 results beat street’s estimates

CWT Limited’s 1Q14 revenue increased 207% YoY to S$4.5b while PATMI was 30% higher at S$35.0m, forming 25.6% of our FY14 forecast. Excluding our house’s net income forecast, which is the highest on the street (14.8% above the next highest, according to Bloomberg), CWT’s 1Q14 net income of S$36.1m would have formed 32.5% of the remaining analysts’ FY14 forecast, beating their expectations. Higher revenue was driven by Commodity Marketing while earnings increase was broad-based, coming from Financial Services, Warehousing and Logistics Services. Financial Services’ (FS) 1Q14 revenue surprised as it surged 505% YoY to S$48.4m, attributed to higher volume and new clients.

Logistic centre with Jan-14 TOP to contribute 2Q14 onwards

We understand from management that CWT Jurong East Logistics Centre, which received TOP in Jan-14 and is currently 90% occupied, has barely started contributing to Logistics earnings this quarter. As the warehouse has a GFA of 600k sq ft, making up 13.4% of total GFA (including those under construction) in Singapore, we expect strong QoQ revenue growth in Logistics next quarter. Further growth in subsequent quarters will come from CWT Cold Hub 2 and CWT Pandan Logistics Centre, which will receive TOPs in 2Q14 and 4Q14 respectively. CWT Cold Hub 2 will be self-operated to provide logistics services while CWT Pandan Logistics Centre has two of five floors filled.

Growing Financial Services; new TP S$1.92

Straits Financial, CWT’s subsidiary in FS segment, recently received a Capital Market Service License from MAS. We understand from management this will enable Straits Financial to increase the scope of its brokering activities in Asia. As Straits Financial will be replicating what it is already doing in the US (where it is a full clearing member of CME and CBOT), we expect higher FS revenue with little start-up costs. We incorporate the new development and revise FS revenue upwards to +110% YoY in FY14. Together with updated financial asset prices, we derive a new TP of S$1.92 (previous: S$1.87) and maintain BUY.

Source: OCBC Research - 16 May 2014