CWT: No surprises (DMG)

(BUY, S$1.26, TP S$1.73)

CWT's 2Q11 core earnings were in line with our expectations, making up 24.8% of our FY11

estimates. 2Q11 core earnings were up 32% YoY mainly due to higher contribution from Contract Logistics. We remain positive over CWT’s long term prospects with its continued business development initiatives, which include the development of a new warehouse. In addition, contributions from MRI Trading AG’s (MRI) would kick in from Jul 11. We are maintaining our earnings forecasts and reiterating our BUY recommendation with a TP of S$1.73, based on 20.8x FY11 earnings (a 20% discount to global peers’ 7-year historical average).

Core earnings within expectations. CWT’s 2Q11 core earnings was up 32% YoY, coming in at

S$8.7m, attributable to higher contributions from Contract Logistics. 2Q11 revenue leapt 25.8% YoY to S$229.9m, on the back of an increase in business activities on the whole, particularly from coal trading, Commodity Logistics and Integrated Logistics services.

Growing its asset base with new warehouses. CWT Hub 3 has obtained TOP in Apr 11 and is currently 85% occupied, with the remaining space fully committed. Meanwhile, the 330k sqf Pandan Logistics Hub is on track for completion in 4Q11. In addition, CWT is building a 725k sqf CWT Cold Hub 2 to be completed by Jan 2013. With a strong pipeline of warehouses being built and completed progressively, it is likely that CWT would continue to perform more asset divestments to REITs moving ahead, which may allow shareholders to continue to enjoy special dividends.

Focusing on integrating MRI Trading AG. Following the completion of a 73.81% stake in base metal non-ferrous concentrates physical trading group MRI in July, management is focusing their efforts on maximising MRI’s earnings potential, as well as to realise synergies arising from the integration of trading and logistics supply chain management activities. We believe this acquisition is a quantum leap for CWT, enabling it to achieve its goal to be a niche player in commodity logistics globally. In our forecasts, we have assumed S$1b of revenue contribution from MRI in FY11.