• FY15 within expectations
• No news on potential privatisation yet
• Maintain HOLD

Gross margins improved across almost all segments

CWT Limited’s (CWT) FY15 revenue plunged 30.0% to S$9.93b, mainly attributable to a 36.9% decline in revenue from its Commodity Marketing (CM) business due to lower trading volume of naphtha and a general drop in commodity prices amidst a downturn in commodity sector.

However, the impact of the steep revenue decline on its bottom-line was limited as FY15 gross profit margins (GPM) improved across its CM (+0.2 ppt) and Financial Services (+21.5 ppt) segments as a result of higher volatility in commodity prices, which increased the group’s overall GPM by 0.9 ppt to 3.1%. Logistics’ FY15 GPM declined slightly by 0.1 ppt to 14.6% due to start-up costs from Pandan Logistics Hub (PLH). Consequently, PATMI declined 3.1% YoY to S$108.9m and formed 98.7% of our FY15 forecast.

Expects logistics business to improve ahead

CM and financial services (FS) segments' solid performance in FY15 were driven by the increased volatility of commodity prices (positive correlation with trading volume) during the year. Looking ahead, with uncertainty over the volatility of commodity prices, we forecast for lower profit before tax margins and revenue in FY16 for both CM and FS segments.

On the other hand, even though the logistics segment saw a weak FY15 due to PLH’s start-up costs, we expect PLH’s occupancy to improve from 80% as at end-4Q15 to more than 90% by end-4Q16. With the mega logistics hub still on track to complete by 2H17, we expect meaningful contribution from FY18 onwards. Therefore, in our view, we have strong reasons to expect improvements in CWT’s logistics margins in FY16 and beyond.

Lower FV to S$1.95

Having announced a first interim dividend of S$0.03 in 2Q15, we were pleasantly surprised with its final dividend of S$0.06 announced in 4Q15. While two dividends per year may become the norm, we believe CWT is unlikely to sustain dividends at such levels ahead. Incorporating its outlook, we cut FY16F PATMI by 9.1% and lower our FV from S$2.05 to S$1.95. Maintain HOLD.

Source: OCBC Research - 19 Feb 2016