CWT

CWT: ($2.20) 2Q15 results missed estimates on weak commodities; fairly priced
Synopsis CWT’s 2Q15 results missed expectations as net profit fell y/y 14% to $26.2m, while revenue plunged 45% to $2.03b, dragged by a 48.4% slump in commodity trading to $1.74b, hurt by lower naphtha volume and a drop in commodity prices.

Separately, logistics (-1.9%) and financial services (-60.3%) also posted revenue declines, partially cushioned by the engineering services (+10.3%).

Gross profit contracted 16% to $75.5m, largely attributed to the fall in commodity volume, slowdown in trade services and start-up cost of new logistics hub. But gross margin improved 1.3ppt to 3.7%, largely due to the change in sales mix.

Bottom line was shored by other income of $2.2m (2Q14: $0.3m), which included a litigation claim as well as a 4.6% reduction in operating expenses to $42.2m.

An interim DPS of 3¢ has been declared (2Q14: nil).

Separately, controlling C&P Holdings is mulling a strategic review of its business and assets, with recent reports suggesting that it is exploring a sale of its 31.9% stake in the logistics group.

On that end, Maybank-KE noted that CWT’s share price has gained 15% over the past three months from the takeover speculation. Nevertheless, the house concludes that the risk/reward of this potential M&A may be largely priced in.

This is arrived by assuming a takeover value of $1.4-1.6b (warehouse valued at $900m, remaining business at 15-20x P/E), which is about 10-20% higher than current market cap. However, there is a 20-30% downside risk in the event the deal falls through.

Maybank-KE has cut its earnings forecasts by 5-7% over the next three years to factor in lower commodities trading revenue and now values the stock at 12x FY15e P/E.

Latest broker ratings:
Maybank-KE downgrades to Hold from Buy with TP of $2.18
CIMB downgrades to Reduce from Hold, cuts TP to $1.76 from $1.80