CWT's 3Q net profit missed consensus forecast

But revenue may have surprised on the upside.

According to CIMB, 3Q net profit met its expectations but was below consensus. 9M13’s number was largely in line at 75% of CIMB FY13, but it cut FY13-15 EPS by 4-12% on expectations of lower margins. 

Here's more:

3Q’s revenue may have surprised on the upside due to higher naphtha volumes and growth in contract logistics revenues (+3.1% qoq), but gross margins continued to trend down, falling from 3.6% in 2Q to 2.8% in 3Q.

This was due to low volatility in commodities prices and MTM losses for copper concentrates, which thinned trading margins and brought gross profit close to our estimate.

Finance costs rose 21% qoq due to more borrowings to fund bigger trade volumes, but this was mitigated by higher contributions from a freight logistics associate. 

CWT recently reduced 0.5-1% of its stakes in Cache Logistics Trust, Cambridge REIT and AA REIT. We are uncomfortable with this move as CWT has given up a stable stream of income.

This news also comes after we learned that the commodity SCM business has become barely profitable in recent quarters due to thinning margins and higher interest costs, which makes us even more uneasy with the divestment.