• Improvement in logistics margin
• Privatisation still a possible catalyst
• Keep forecasts largely unchanged

Recorded one-off withholding taxes

CWT Limited’s (CWT) 1Q16 revenue decreased 14.0% YoY to S$1.88b, mainly attributable to lower commodity trading volume, especially in naphtha and a general drop in commodity prices amidst a downturn in commodity sector. However, the impact of the revenue decline on its PATMI was limited as 1Q16 gross profit margins (GPM) improved across its logistics (+1.7 ppt) segment helped by improvement in commodity logistics and Financial Services (+6.3 ppt) segment on better results in both brokerage and structured trade services.

Even as commodity marketing’s gross profit was weighed down by unrealized mark-to-market losses, CWT’s overall GPM still rose 0.6 ppt to 4.5%. We also noted CWT recorded an S$4.2m one-off withholding taxes paid for foreign dividends received in 1Q16.

Consequently, stripping out exceptional items, 1Q16 core PATMI declined 8.3% YoY to S$27.9m and formed 23.7% of our FY16 forecast; hence largely in line.

Mega logistics hub to complete by 1H17

Looking ahead, we believe commodity marketing will continue to be impacted by the volatility of commodity prices, and do not rule out more unrealized mark-to-market losses ahead. However, we expect the heavyweight contributor, CWT’s logistics segment, to help offset and stabilize the earnings outlook.

The GPM improvement in logistics business recorded in 1Q16 is likely to sustain as we still expect occupancy at Pandan Logistics Hub to improve to more than 90% by 4Q16. Furthermore, over the longer-term, with the mega logistics hub still on track to complete by 2H17, we expect meaningful contribution from FY18 onwards to be a key growth driver.

Meanwhile, we think one key catalyst for CWT is still the possibility of a potential privatisation occurring in the near-term. With CWT’s major shareholder, C&P Holdings, still undergoing business strategic review, a general offer could potentially be triggered if C&P sells its 32% stake in CWT. However, with no concrete details at this moment, we prefer not to speculate and wait for further clarity.

Maintain HOLD

With in-line 1Q16 results, we keep our forecasts unchanged for now. Maintain HOLD with the same FV estimate of S$1.95 (SOTP method).

Source: OCBC Research - 6 May 2016