CWT

CWT: UOB Kay Hian maintains Buy and increases TP to $2.09 from $1.80 after meet up with mgt. Key pts as follow: 1) New growth driver from commodity trading: See this area as a potential new area for CWT’s future growth. This is a natural progression given its presence and experience in commodity logistics, which provide CWT with natural advantages such as trading information flow and strong existing relationships with upstream and downstream Co’s. 2) Managing the risk. Although investors are likely to be sceptical of CWT’s venture into commodity trading, believe mgt has taken adequate steps to safeguard its exposure. In addition, grp does physical hedging rather than pure hedging with a net exposure Leverage for its commodity trading arm is “ring-fenced” at the subsidiary as it uses non-recourse financing, with no ultimate liability to CWT. 3) Warehousing update. Grp recently undertook a sales and leaseback transaction on its Pandan Logistics Hub, which will result in a deferred gain of S$11.8m. This is expected to be recognised over the next 3-4 years. In terms of capacity, the group has recently started construction of Cold Hub 2, which is targeted for wine storage. 4) Consolidation phase. After its M&A phase over the past two years, understand that mgt’s current focus would be to integrate its new investments and focus on organic growth for its existing businesses in freight and logistics. Overall, conclude that CWT remains attractive for its global exposure to trade, dominance in logistics niches and strong financials. Although investors could be concerned about its venture into commodity trading, believe this is reflected in its undemanding valuations.