• Broad-based revenue growth in FY14
• Logistics capacity expansion in FY15
• Lower FV; reinstate BUY rating

PATMI grew 6% YoY to S$112.4m

CWT Limited’s (CWT) FY14 revenue jumped 67% to S$15.2b as it recorded revenue growth from all its business segments. Its top-line growth continues to be driven by Commodity Marketing (CM) segment with 72.0% growth to S$13.9b. While revenue surged 67%, FY14 PATMI only saw a 6% increase to S$112.4m. Excluding oneoff gains/losses, core PATMI grew 18.2% to S$111.9m. The growth in profit was still mainly due to: 1) solid earnings from Financial Services (FS) segment on higher business volume with increased customers’ base for brokerage as well as trade services, and 2) increased capacity in Logistics Services (LS) from CWT Jurong East Logistics Centre which received TOP in Jan-14. However, as margin squeeze on its CM segment due to weaker demand, liquidity and less favourable trading conditions led to decline in CM’s profit contribution, CWT’s FY14 EPS only formed 87.9% of the consensus forecast.

FY15 growth to come from logistics capacity expansion

Going forward, we continue to expect CWT to grow through capacity expansion in its LS segment, specifically: 1) CWT Cold Hub 2, which obtained TOP in July 2014 is about ~100% utilised from Jan-15 after a fitting out period, and we expect to see almost a full-year impact in FY15, 2) CWT Pandan Logistics Centre, which obtained TOP in end Jan-15, and expects 100% utilisation from Apr-15 after 2-month fitting out period, and 3) in the longer-term, CWT’s 2.2m sqft mega logistics hub, which is expected to complete in 2017 and construction targeted to commence in mid-2015. We expect LS gross margins to stay close to its current level of ~17.0%. For CWT’s CM segment, we think volume will remain high while gross margin to improve from average of 0.80% in FY14 to 0.85% in FY15 and FY16. However, note that Naphtha trading will be impacted by seasonality issues with higher demand for winter season.

Change in analyst coverage; reinstate BUY rating

With change in analyst coverage, we incorporate the latest results and adjusted our assumptions on a slower growth outlook. Consequently, we derive a new FV of S$1.98 (prev: S$2.01) and reinstate our BUY rating on CWT.

Source: OCBC Research - 17 Feb 2015