CWT (Lim&Tan)

S$1.24-CWTS.SI

􀁺 As expected, CWT is acquiring a commodities trading company. 73.8% stake in Swiss-based MRI Trading AG for US$94 mln, valuing it at US$127.4 mln.

􀁺 Initial payment, payable on closing of the deal, is US$60.8 mln, to be satisfied by about US$50 mln cash and US$10 bln through the issuance of 10 mln new shares at S$1.24 each. CWT will pay the owners of MRI US$11.1 mln on each Jun 30th 2012, 2013 and 2014.

􀁺 MRI, which considers itself a competitor to the giant Glencore (33.7 bln pounds market cap) , markets copper, zinc, lead, gold etc; and has net asset value of US$82.41 mln at end Jun ’11, ie the purchase price represents a 55% premium.

􀁺 The acquisition is earnings accretive, as on pro-forma basis, it will increase CWT’s 2010 (inflated) earnings by S$13.5 mln or 7.5% to S$192 mln. (Note CWT’s 2010 profit included $148 mln profit from sale of assets.)

􀁺 We believe the key point is that, commodities trading being a highly capital-intensive business, which CWT is obviously ready to diversify into and grow it, the acquisition of a small player that MRI is, will likely be received positively by investors. The acquisition therefore merits a BUY for CWT.

􀁺 The only likely short term “obstacle” for CWT is the technical resistance at the $1.40 price level, being the high reached earlier this year.