CWT

[propertyinvestor]

Hi PI,

I was going through CWT's 2011 AR, I can't find the figures that you mentioned. Can you give me a lead on the page that reveal the performance of Indeco?

Cheers
GG

Indeco engineers was acquired by CWT for a token sum of 9million in 2006. Last year, Indeco Engineers generated net profits of 22million.

Oh sorry, it should be net revenues not profits

do see the presentation slides here

http://info.sgx.com/webcoranncatth.nsf/V...0003395D5/$file/CWT_3Q2012Results_PresentationSlides.pdf?openelement

[greengiraffe]

Hi PI,

I was going through CWT's 2011 AR, I can't find the figures that you mentioned. Can you give me a lead on the page that reveal the performance of Indeco?

Cheers
GG

Indeco engineers was acquired by CWT for a token sum of 9million in 2006. Last year, Indeco Engineers generated net profits of 22million.

Oh sorry, it should be net revenues not profits

do see the presentation slides here

http://info.sgx.com/webcoranncatth.nsf/V...0003395D5/$file/CWT_3Q2012Results_PresentationSlides.pdf?openelement

No worries, thanks.

[edragon]

What is the significance of the Rank and Market Capitalisation as at 31 Dec 2012 between these two?

Rank/Company/Mkt Cap/% Change

#113 Cache $871.0M +43.8%
#130 CWT $735.4M +23.7%

My observation is that Cache seems to perform better last year. Your comments please.

[greengiraffe]

Permit me to go back to memory lane.

On Cache - the main reason is inline with the out-performance of REIT sector as a whole. However, my hunch is that Cache could be an under-performer in the REIT space.

One CWT, the acquisition of MRI could have held back its performance:

http://info.sgx.com/webcoranncatth.nsf/V...E00688CB7/$file/Presentation_Acquisition_of_MRI.pdf?openelement

To me, CWT can be viewed as 3 different businesses:

(i) existing core business of Logistics and engineering services;

(ii) an originator of REIT assets - previously fed into Cambridge but now into Cache;

(iii) MRI, swiss based commodities trader that was acquired back in 2011.

The main core businesses are doing well but not well appreciated due to the black box in MRI that is not viewed favourably after NOW stocks fell out of favour.

Note that recurrent business is trading at less than 10 times PER based on FY12/12 estimates.

The REIT asset light business can be valued on the potential profits to be booked should CWT decide to offload into Cache. On a more optimistic basis, CWT can be valued along the lines of ARA, Capmall Asia or even Capland. However, such comparisons must be tempered by CWT's small asset base even though they are amongst the biggest owner of logistics centres in Singapore and hence an applicable discount in ratings is warranted is the latter methodology is adopted.

That leaves MRI. So far MRI has yet to live up to market expectations . In fact, MRI appears to be on a consolidation phase post CWT takeover.

A review of the terms of acquisitions reveal a phasing in period following the takeover. CWT paid the initial consideration of US$60.8m upfront with the balance of US$33.2m in each of 30 June to 2012, 2013 and 2014. In fact, following the initial 73.8% stake, CWT has progressively increased its stake to well over 95%.

There is no doubt that trading business is a highly capital intensive and thin margin business. In the light of concerns sparked by NOW, market is inherently apprehensive of MRI's potential.

I personally think that market has been overly pessimistic over MRI so much so that it overlooked CWT's strength in core business and its ability to book profits should it decide to go asset light.

While I am not going to over pay for trading business, giving no value to a trading business that is in a transition phase isn't fair as well. However, in this case, market appears to even overlook the profits to be booked on asset light strategy - this I think has led to the undervaluation and the unloved characteristics.

CWT - overlooked stock?

Vested

[greengiraffe]

http://info.sgx.com/webcoranncatth.nsf/V...F00350CD5/$file/CWT_FY2012Results_Announcement.pdf?openelement

http://info.sgx.com/webcoranncatth.nsf/V...F00350CD5/$file/CWT_FY2012Results_PresentationSlides.pdf?openelement

Record set of earnings even without the one-off gains from disposal of assets to Cache Reit. EPS excl one off gains $0.142, essentially translating into less than 10x historical PER.

Trading contributed a sizable amount, with logistics posting almost flat results ex one-off gains from asset disposal and engineering registered hefty gains of 276.6%.

Given the growth stock status, CWT only lifted dividend payout from 2.5 cents to 3.0 cents.

2H 12 results ex one-off appears to be lower than 1H12.

Company remains salient on outlook and appears to be quite abrupt in its presentations. Something brewing on the corporate front?

Buddies input appreciated.

Vested

[greengiraffe]

CIMB Results Review:

More upside from here
CWT ended FY12 with a strong 4Q12. Key positives likely came from
stronger metal trading volumes, with a 4Q surge in Chinese demand.
Its logistics business continued to grow steadily. CWT announced a
3Scts per share dividend compared to 2.5Scts in the previous year.
4Q12 core net profit (S$22m) met our
(S$22m) and consensus (S$21.5m)
estimates. FY12 core net profit
formed 100% of our estimate. We
expect the surge in trading volumes to
continue into 2013, prompting us to
raise our FY13-14 EPS by 6-8%. We
also introduce FY15 numbers. Our
SOP-based target price increases to
S$1.75. Maintain Outperform.
2012 review
2012 saw the first full-year
contribution from base metal trading.
Consistent performance from trading
coupled with organic growth in
logistics led to a doubling of operating
profit to S$88.7m. Gross margin was
flat sequentially at 3.8%, possibly due
to flat copper price movements. While
the group’s balance sheet ended with
a significant increase in gearing
(0.38x to 0.64x), we believe this is
largely due to cashflow timing issues.
Excluding MRI, CWT should still be
in a net cash position.
What we see in CWT
Many investors are concerned about
the lack of clarity in CWT’s base metal
trading strategy. From our
discussions with management and
industry experts, there lies a sweet
spot in the base metal trading market
for smaller players such as MRI.
Rising land prices have made it
increasingly difficult for developing
warehouses at attractive yields in
Singapore and we think that CWT’s
expansion into commodities trading,
albeit radical, is a longer-term
necessity. In addition, CWT’s core
logistics business continues to grow
steadily, providing a stable earnings
base with strong cash-generation
ability.
Attractive valuations
CWT is currently trading at 7.7x
rolling forward P/E, or 1.28x CY13
P/BV with a market implied ROE of
11.35%. We think that CWT should be
able to generate a CY13 ROE of 14.5%.
Our target price of S$1.75 values CWT
at 9.7x CY14 EPS or 1.6x CY13 BVPS.

[Nick]

The recent analyst reports covering ARA mentioned that the Management sees brighter acquisition prospects for Fortune REIT and Cache REIT - so perhaps Cache REIT might acquire some of the ROFR assets held under CWT. Either way, fees will flow to CWT. Always viewed that particular division of CWT as an industrial developer with a ready-made client in the form of industrial REITs. Strategy is not new - it did take a stake in Cambridge REIT Management prior the GFC.

(Not Vested)

[greengiraffe]

Hi Nick,

CWT is a hybrid of all sorts with its main core in logistics. It is adding value to the asset heavy core logistics operations by having a REIT platform. Cambridge was forsaken as GFC hit and there was no way in which Cambridge could acquire assets from CWT. Cache was a new initiative with the help of ARA.

The trading arm was added at the tail end of NOW stocks but they are very focus and management ensure that the new division dovetails with the logistics operations in terms of the products that they are trading.

Since privately owned C&P Holdings bought over CWT, the operations have been progressively build up.

If you look at the 2 key persons driving CWT, father and son are all well trained to run the business. Chairman (father) Loi Kai Meng is a trained accountant and hence his feel for numbers and risk management should be presumed to be second to nothing. Loi (junior) Pok Yen, CEO, is a business admin graduate with extensive experience in logistics and strategic business management (likely result from his employment in C&P) - hence the focus on CWT's core and perhaps Indeco Engineers.

Its an interesting logistics conglomerate. However, my personal feel is that there is plenty of work in progress and hence they have not actively engaged the investment community and hence analysts continue to have brief understanding of the group's various levers.

Vested

The recent analyst reports covering ARA mentioned that the Management sees brighter acquisition prospects for Fortune REIT and Cache REIT - so perhaps Cache REIT might acquire some of the ROFR assets held under CWT. Either way, fees will flow to CWT. Always viewed that particular division of CWT as an industrial developer with a ready-made client in the form of industrial REITs. Strategy is not new - it did take a stake in Cambridge REIT Management prior the GFC.

(Not Vested)

[greengiraffe]

Maybank Kim Eng Latest Update:

CWT Ltd
Still Significant Upside From Here
Profit upside still substantial from here. CWT registered recurring
net profit of SGD85.3m in FY12 (excluding gain on warehouse
divestment of SGD22.6m). This is a substantial 70% yoy growth, which
validates our earlier investment thesis that this is a multi-fold structural
growth story. Yet, we think this is just the beginning, given that FY12
was the first full-year contribution from commodity trading.
Volume gains in commodity trading will drive bottom-line in FY13.
We estimate this segment contributed 40% of recurring profit in FY12.
Given the scalability of the business, this will continue to be a major
driver of profit over the next five years. Management’s near-term target
is to double volume, which is reasonable given latest quarterly run-rate
growth. Notably, Q4 segment revenue was up 66% yoy and 28% qoq.
Operating leverage should kick in. Last year, the bottomline in
commodity trading was hampered by expansion start-up cost such as
overheads and new hires. We understand that insufficient scale in new
offices (China and Singapore), as well as new products such as coal
and naptha means they are not bottom line-positive yet, which should
change in FY13 as volume ramps up.
Warehouse rental rates on the rise. CWT is one of the largest
operators of ramp-up warehouses in Singapore, and will benefit from
the rise in rental rates on the back of increasing capital values. We
estimate rates have surged around 12% over the past twelve months,
which should feed into profit. This year, CWT is currently developing
two warehouses, Cold Hub 2 and Distripark @Toh Guan East, which
will be completed by end-2013 and will add around 18% to total
Singapore warehouse space under management.
Reiterate BUY. We see significant value, with REIT units and
warehouse portfolio alone worth SGD1.20/ share. While net gearing
shows 65%, the debt is mostly trade-financing related to commodity
trading, which are non-recourse to CWT. Excluding these, CWT has a
net cash position of SGD79m. We use a more conservative 5x EBITDA
to value its operating business, given the overall de-rating of commodity
traders, but still derive a higher SOTP TP of SGD2.05, for 46% upside.

[greengiraffe]

UOB KH posted their note on Cache REIT maintaining a BUY. The main beneficiary is likely to be CWT as their pipeline will be shifted to Cache REIT.

Such an exercise will kill 2 birds with one stone for CWT as a sponsor:

i) booking capital gains on CWT Hub 3 in line with asset light strategy;
ii) dilute interests in Cache even though absolute holdings are maintained.

Vested

Cache Logistics Trust (CACHE SP) BUY
(Maintained)
Company Update
Share Price S$1.31
Target Price S$1.45
Upside +10.7%
(Previous TP S$1.52)
Company Description
Asia-Pacific focused logistics REIT with
portfolio of logistics properties in Singapore
and China.
Stock Data
GICS sector Financials
Bloomberg ticker: CACHE SP
Shares issued (m): 703.4
Market cap (S$m): 921.4
Market cap (US$m): 737.2
3-mth avg daily t'over (US$m): 1.4
Price Performance (%)
52-week high/low S$1.35/S$0.995
1mth 3mth 6mth 1yr YTD
(2.2) 9.2 11.5 26.0 5.6
Major Shareholders %
C&P Hldgs 10.0
FY13 NAV/Share (S$) 1.01
FY13 Net Debt/Share (S$) 0.34
Price Chart
90
100
110
120
130
140
0.90
1.00
1.10
1.20
1.30
1.40
(lcy) (%)
CACHE LOGISTICS TRUST
Cache Logistics Trust/FSSTI Index
0
2
4
6
8
Mar 12 May 12 Jul 12 Sep 12 Nov 12 Jan 13 Mar 13
Volume (m)
Source: Bloomberg
Analysts
Terence Khi
+65 6590 6614
[email protected]
Vikrant Pandey
+65 6590 6623
[email protected]
Building A S$200m War Chest To Fund CWT Hub 3?
Cache announced the private placement of 70m units (9.9%) at an issue
price of S$1.24 (4% discount to adjusted VWAP) to raise S$86.8m.
Proceeds will be used to fund the earlier announced acquisition of Precise
Two (S$57m) and to build a S$200m war chest, which could fund CWT Hub
3 (est. S$170m). Maintain BUY with a lower target of S$1.45 (from S$1.52)
after factoring in the 2.3-4.4% DPU dilution.
What’s New
 Private placement of 70m units. Cache Logistics Trust (Cache)
announced the private placement of 70m new units (or 9.9% of total
units) at an issue price of S$1.24 to raise gross proceeds of S$86.8m.
The issue price is at the lower end of the S$1.24-1.265 range for the
private placement. The books were fully covered following the overnight
placement. Net proceeds are approximately S$84.2m after fees. DBS
and Standard Chartered are the joint lead managers and underwriters.
 The price range represents a 4% discount to the adjusted volume
weighted average price (VWAP) of S$1.2912 per unit on 18 Mar 13
(excluding an advanced distribution of 2.12 S cents per unit).
 Acquisition of Precise Two finalised. Proceeds will be used to fund
the earlier announced (Feb 13) acquisition of Precise Two, a newly
completed three-storey ramp-up logistics warehouse, for S$57.3m,
(66% of gross proceeds). Cache has exercised the call option for the
property and entered into a Sale & Purchase agreement with the
vendor, Precise Development. The acquisition is expected to be
completed in early-Apr 13.
 Advanced distribution of 2.12 S cents per unit for existing unitholders
has been announced by Cache for the distributable income for the
period 1 Jan 13 to 26 Mar 13, which is expected to be the date
immediately before the new units are issued on 27 Mar 13.
Stock Impact
 Yield-accretive acquisition even if fully financed with equity. With
an NPI yield of 8.7%, the acquisition of Precise Two would be yield
accretive (1% accretion to DPU if acquired and held through 2012) even
when fully-funded by equity (current DPU yields are 6.5%). While a fully
debt funded acquisition would still have resulted in reasonable gearing
of 35.3%, the use of equity allows Cache to build its debt headroom for
future acquisitions.