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The Hare’s Dilemma; Will Operating Costs Stymie CWT’s Rise?
Tradeable, Tradeable Ideas | 21 May 2014
By: Raymond Leung
Articles (142) Profile
  1. CWT released results that showed stellar topline performance. 1Q14 revenue grew 207 percent to hit $4.5 billion. However, net profit’s increase was more mellow, increasing by 30 percent to $34.9 million.
  2. The jump in revenue was largely attributable to growth in CWT’s commodity marketing division. It had recently been awarded a license by the MAS to broker a wider range of commodities.
  3. CWT’s logistics division is primed for increased contribution in the coming quarters after its Jurong East Logistics Centre commenced operations this quarter.

Analysts updates on CWT
Analysts updates on CWT

CWT released very eye catching 1Q14 results last week which attracted strong attention from analysts from various research houses. Revenue for the quarter grew to $4.5 billion from $1.5 billion in 1Q13; a 207 percent increase.

CWT’s strong performance was mainly attributed to their Commodity Marketing division which accounted for 93 percent of the group’s revenue.

The growth in its Commodity Marketing division was due to the Capital Markets Services Licence awarded by the Monetary Authority of Singapore. This licence allowed it to broker a wider range of commodities this quarter.

Other divisions of the group such as logistics, engineering and financial services saw moderate growth this quarter

However, net profit for CWT was only increased by 30 percent to $34.9 million from $26.9 million of the same quarter in the preceding year. This was due to higher operation costs which dragged down the profit margin of the group.

For the current financial year, the outlook for CWT is expected to remains robust. There is no doubt that the Commodity Marketing division of the group will continue to support revenue growth.

A higher contribution from its Logistics division will likely bring about further upside to the group as its Jurong East Logistics Centre opened its doors for operation this quarter.

Till date, the new logistics centre is 90 percent occupied but has barely contributed to the reported quarter.

CWT will continue to expand its businesses with the recent establishment of its wine storage business, Singapore Wine Vault. If needed, CWT may sell its logistics properties to its REIT, CACHE Logistic Trust which will efficiently recycle its capital for future expansions.

In view of its strong performance and positive outlook, analysts maintain their favourable view to CWT. Analysts from Maybank Kim Eng Research gave the group a “Buy” call with a potential upside of 14.8 percent.

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Trained in fund management, Raymond is familiar with shares and various investment vehicles.

Please click here for more information about this author.

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