CWT Limited’s (CWT) 1Q17 revenue surged 39.0% YoY to S$2.61b, on higher contributions from: 1) logistics services (+4.0%) with improved performances at Warehousing and Commodity Logistics business, and 2) commodity marketing (+45.8%) as a result of increased trading volume at significantly higher commodity prices, but partly offset largely by weaker performance at financial services (-34.0%) due to fewer structured trade opportunities despite stronger brokerage services.

Gross profit margins were largely stable across all its business segments except for financial services, which saw a drop of 9.0ppt to 30.5%. Consequently, as operating expenses fell 2.3% YoY to S$45.1m, 1Q17 profit before tax and PATMI rose 6.8% and 27.5% to S$36.4m and S$30.2m, respectively. However, stripping out one-off items, CWT’s 1Q17 core PATMI came in above our expectations as it grew 3.7% to S$30.7m, and formed 32% of our FY17 forecast.

Meanwhile, HNA’s S$2.33/share offer (subject to pre-conditions being fulfilled or waived) for CWT is still on the table. With the offer price representing a premium to our S$1.95 FV, we recommend shareholders to ACCEPT THE OFFER, once the VGO is made by HNA upon meeting the pre-conditions.

Source: OCBC Research - 11 May 2017