CWT acquired a 74% stake for US$94m (S$116.5m)

Kim Eng - target price of $1.85

CWT announced 3Q11 results, which marked the first quarterly set of numbers since the consolidation of MRI Trading. The latter is a Switzerland-based commodities trader in which CWT acquired a 74% stake for US$94m (S$116.5m). The strong profit growth is an affirmation of our investment thesis that there is a lot of potential in CWT’s venture into commodities trading given its experience in commodity logistics. Maintain BUY.

Our View
As a result of the consolidation of MRI Trading, revenue and profit figures for 3Q11 were substantially higher than in the previous quarters. Revenue came in at $1b, of which $772m was from MRI. Net profit surged by 189% YoY from $5.5m to $15.9m (2Q11 net profit adjusted for one-offs: $5.6m).

Although the bottomline contribution from MRI was not separately disclosed, it appears to be in line with historical performance (more than US$2b in revenue and average net profit of US$20m). We estimate it to be about S$4m this quarter. Padding the bottomline this quarter was also S$1.9m in finance income received from REIT units on its books.

Organically, Pandan Logistics Hub was commissioned in November 2011 with full occupancy. This is the second warehouse commissioned this year, after CWT Hub 3 in June. This should boost organic cash flow/ earnings, which suffered a void after the $443m sale-leaseback of Commodity Hub and Cold Hub to Cache REIT in 2010.

Action & Recommendation
At CWT’s current share price, an investor is paying only for the market value of the group’s warehouse portfolio and REIT units held on its balance sheet. This discounts the underlying logistics business and MRI Trading. We will be reviewing our estimates and target price in view of the substantial changes to CWT’s balance sheet profile. Maintain BUY and target price of $1.85.


Am Fraser

CWT - Q3 earnings soar to $15.8m
CWT posted a 189% in 3Q net profit to $15.8mil, following the completion of the acquisition of MRI Trading AG. Earning per Share came in at 2.64 cents for the quarter as compared with 0.93 cent for the corresponding period a year back. Revenue surged to a record high of $1bil, more than five times 3Q10's $192.7mil, as the group accounted for the results of MRI in its consolidated financial statements for the period.