CWT profits fell 16.9% in 3Q

Blame it on lower commodity trading volume.

CWT is expected to be continually hit by weak commodity marketing amidst volatile commodity prices, says OCBC Investment Research.

CWT Limited's (CWT) 3Q16 revenue decreased 11.4% YoY to S$2.34b, mainly due to lower commodity trading volume notably in naphtha and a general drop in commodity prices amid a downturn in commodity sector.

Despite lower revenue, gross profit came in flat at S$93.7m due to unrealized mark-to-market (MTM) accounting gains of S$9.7m in 3Q16 arising from its commodity marketing (CM) segment.

However, 3Q16 administrative expenses rose 11.0% YoY to S$51.2m due to expansion of brokerage business and provision made in anticipation of expenses relating to the on-going corporate transaction.

Consequently, 3Q16 profits after tax and minority interests (PATMI) declined 16.9% YoY to S$22.6m. For 9M16, revenue fell 13.6% YoY on similar reasons as 3Q16 while gross profit declined 3.3% to S$244.4m due to unrealized MTM losses instead of gains recognized over the nine-month period.

Stripping out MTM accounting effects and other one-off items, CWT's 9M16 core PATMI came in below our expectations as it fell 17.9% YoY to S$71.6m, and formed 70% of our FY16 forecast.

"Looking ahead, we expect commodity marketing to remain weak, with volatile commodity prices likely to lead to more unrealized MTM impact. However, we expect the heavyweight contributor, CWT's logistics business, to provide the stability, partially offsetting weakness from CM segment," said OCBC Investment Research.