• 2Q15 dragged by start-up costs
• Outlook largely unchanged
• Maintain HOLD

Logistics hub start-up costs dragging 2Q15

CWT Limited’s (CWT) 2Q15 results came in slightly below our expectations as PATMI declined 13.5% YoY to S$26.2m, while 2Q15 revenue plunged 45.1% to S$2.03b. Revenue was lower mainly due to declines in trading volume and commodity prices from its Commodity Marketing (CM) (-48.4% YoY) segments. The weaker PATMI was largely attributable to Logistics (-26.4% YoY) and Financial Services (FS) (-51.8% YoY) segments. Start-up cost from its new Pandan Logistics Hub (PLH) and slowdown in trading services were reasons for the weaker earnings. With the exception of logistics (-4.7 ppt YoY), gross profit margins (GPM) improved across all other segments. For the same reasons, 1H15 revenue declined 52.6% YoY to S$3.9b while PATMI, which formed 46.9% of FY15 forecast, was 15.1% lower at S$55.4m.

Unchanged growth outlook from 1Q15

Looking ahead, its outlook remains largely unchanged from what we forecasted in 1Q15. FY15 revenue is likely to stay weak compared to FY14 due to the drop in commodity prices (especially for Naphtha) and trading volume. We also expect the reduced volatility in commodity prices to translate to lesser trades performed, and this in turn will affect its FS segment with lower income from trade finance services. That said, we expect GPM for both its FS and CM segments to maintain largely similar to FY14. On its logistics segment, as it is still in the phase of ramping up occupancy for its new PLH, we adjust our forecast for slightly slower top line growth and slightly weaker GPM due to the start-up costs. We expect full contribution from PLH to come in closer to end-FY15, with logistics GPM to see improvement thereafter. As forecasted previously, contribution from engineering is likely to see weakness in 2H15 as new projects take time to ramp up.

Raising FV to S$2.05, but maintain HOLD

Post-2Q15 results, we further trim our FY15/16F PATMI by 6.4%/0.7%, respectively. However, we raise the P/E peg for our SOTP valuations (Exhibit 2), increasing FV from S$1.88 to S$2.05 based on blended FY15/16F earnings. Maintain HOLD.

Source: OCBC Research - 4 Aug 2015