• 3Q15 broadly in-line
• Impacted by Tianjin explosion
• Unchanged forecasts; maintain HOLD

3Q15 dragged by S$6.3m impairment losses

CWT Limited’s (CWT) 3Q15 results came in broadly within expectations as PATMI declined 16.1% YoY to S$27.2m, which formed 24.6% of our FY15 forecasts. 3Q15 revenue plunged 48.8% YoY to S$1.93b mainly due to declines in trading volume and commodity prices from its Commodity Marketing (CM) (-52.2% YoY) segment. The weaker PATMI was largely attributable to impairment of assets (S$12.7m) lost in the Tianjin explosions.

Including the estimated insurance claims provided for in 3Q15, the net effect of the explosions on its PATMI was a loss of S$6.3m. Excluding the one-off net impairment charge, 3Q15 core PATMI rose 3.4% YoY to S$33.5m. With the exception of logistics (-2.8 ppt YoY), gross profit margins (GPM) improved across all other segments. Logistics GPM was drag down by start-up costs from Pandan Logistics Hub (PLH) as occupancy rate as at end-3Q15 was only 80%.

Growth outlook remains unchanged

Going into 4Q15 and FY16, its outlook remains largely unchanged from what we forecasted since 1Q15. FY15/16F revenue is likely to remain weak compared to FY14 due to the drop in commodity prices (both Naphtha and Copper concentrate) and trading volume. However, as seen in 3Q15, volatility in commodity prices may open up opportunities for its Financial Services (FS) segment leading to a higher GPM (3Q15: 60.5%).

Similarly for CM, while commodity prices have decreased, CWT’s ability to execute this business efficiently has led to a 0.7ppt YoY improvement in 3Q15 GPM to 1.6%. For logistics segment, we expect PLH to be a drag over the next 6-9 months but note that its mega integrated logistics hub is still on track to complete by 1H17. For engineering segment, management guided that works for new contracts won have already started from end-3Q15, and is likely to see steady contributions as construction work is expected to last over the next 15 months.

Maintain HOLD

With a set of broadly in-line 3Q15 results, we opt to keep our forecasts largely unchanged for now. Based on SOTP valuations, maintain HOLD with the same FV of S$2.05.

Source: OCBC Research - 6 Nov 2015