CWT (DMG)

BUY
Price S$1.26
Previous S$1.45
Target S$1.40

Sale and leaseback of warehouse in China

CWT sold its 13,547sqm Jinshan chemical warehouse in Shanghai to Cache Logistics Trust for RMB71m and a gain of S$6.9m. We have factored the gains into our earnings and lowered our NVOCC and Logistics segments’ contribution estimates. Consequently, our FY11 and FY12 earnings forecasts are reduced by 3.4% and 12.9% respectively. We expect start-up costs from its expansion into the commodity logistics and commodity futures brokerage business to remain a drag on earnings for the next few quarters but remain positive over CWT’s long term prospects with its continued business development initiatives. Maintain BUY with a lower TP of S$1.40, based on 20.8x FY11 earnings (a 20% discount to global peers’ 7-year historical average).

Selling China warehouse. CWT is selling its 13,547 sqm (gfa) chemical warehouse facility in Shanghai for RMB71m to Cache Logistics Trust. The facility is located in the Jinshan District, within one of the largest petrochemical bases in Asia, the Shanghai Chemical Industrial Park. CWT will recognise a one–off gain of S$5.2m and a deferred gain of S$1.7m from this transaction.

Lowering earnings but still positive outlook. We have lowered our FY11 EBIT contribution from the NVOCC segment by 17.8% to S$11.1m and the Logistics segment’s earnings (pre tax and interest) by 14.3% to S$20.3m, on the back of previously bullish revenue projections and the lower margins from the coal supply chain management business. In addition, our FY12’s NVOCC EBIT contribution was cut by 22.4% and our Logistics earnings are trimmed by 7.1%. Consequently, our FY11 and FY12 earnings have been reduced by 3.4% and 12.9% and estimated to come in at S$39.8m and S$41.3m respectively. However, we remain positive on CWT‘s growth prospects in the longer term with the various new business initiatives the company has been rolling out, such as building a new 725k sqf CWT Cold Hub 2 and developing a S$10m transport hub (Transhub) that provides a multi-modal hub for loaded containers and facilities for chassis parking.