CWT’s core logistics business has hit a soft patch due to
disappointments in the commodities logistics segment. The commodity
SCM business, while facing new growth prospects from naphtha, is
expected to report flat yoy profits due to one-time restructuring costs.
With a weak outlook for both the core
logistics operations and commodity
SCM, we downgrade our Outperform
call to Neutral. We cut FY13-14 EPS
estimates by 9-14% and our
SOP-based target price falls to S$1.81.
A short-term de-rating catalyst is the
announcement of 2Q results in
August, where the drag of labour cost
restructuring will show up as a
one-off and slower commodity SCM
growth will start to feature.
Why logistics could stutter
The core logistics operations have
suffered due to
1) poor harvests of
soft commodities, affecting the
commodity logistics segment,
demand for hard commodities,
hitting the LME metals business, and
3) competition in the collateral
management business from local
Chinese collateral managers.
upside, demand from chemicals and
capacity additions are expected to
counter the impact, although these
will only kick in from FY14 onwards.
Developments in commodity
In 4Q12, CWT added naphtha to its
trading portfolio, which contributed
approximately 25% to total
commodity SCM revenues.
Management sees growth potential in
naphtha and is looking to balance the
trading portfolio by increasing
naphtha’s share of segmental
revenues to 40-50%. Meanwhile,
growth for bread-and-butter copper
concentrates was marginal and
growth potential looks muted. Coal
trading is no longer a viable model
due to strict trade restrictions in
China and Indonesia.
We adjust our forecasts to reflect
slower growth in copper concentrates,
2) addition of naphtha to the trading
3) smaller contributions
from coal trading,
restructuring cost of S$5m in FY13,
poor commodity logistics
6) contract logistics
warehouse additions in FY14-15.
result is a fall in FY13-14 EPS
estimates by 9-14% and in our
SOP-based target price to S$1.81.
This implies a P/E of 10.7x, which we
believe is not excessive as stability in
commodity SCM earnings will
warrant higher P/E multiples. (Read Report)
Source : CIMB Research
Labels: Commodity, CWT, Logistic Sector