Raising the roof: Why undervalued CWT is on a profit rally

It’s going farther than logistics.

CWT Limited remains undervalued despite registering broad-based revenue growth in 1Q14. But the earnings rally is expected to continue on for the rest of 2014, with even stronger profits expected next year.

According to DBS, CWT’s strength lies not only in its warehousing and logistics business but also in the Capital Market Service License that it was recently granted by MAS.

“Broad-based revenue growth in Logistics in 1Q14, along with better margins on higher rental renewals. While revenue from Freight Logistics dipped 4% to S$43m, revenue from Freight Logistics grew 11% to S$100m and by 19% for Warehousing and Other Logistics to S$75m. At the same time, higher renewals helped improve margins for this segment in 1Q14,” stated a report from DBS.

Here’s more from DBS:

New warehouses coming onstream should help sustain the trend well into 2015. With CWT Cold Hub’s TOP this quarter and CWT Pandan Logistics Centre’s TOP in 4Q, this additional 1.4m sqft of owned warehouse space will boost the Logistics segment’s revenue and margins even further.

Strong traction and momentum for Financial Services. Beginning in mid-2011, Financial Services has been growing rapidly, from revenues of just S$2.9m in 2011 to S$65.3m in 2013, and S$48m in the first quarter of 2014 alone.

We now project this segment to contribute S$220m in revenue in 2014F, with a conservative 15% growth estimate in 2015. Margins should also improve on operating leverage.

Capital Market Service License in Singapore to help boost growth further. The Group was also granted the Capital Market Service License by MAS to conduct regulated activity trading in futures contracts, which will broaden the Group’s product offerings to a more complete suite of commodity derivatives to its customers. This should hence help the Financial Services segment to continue growing.