See why CWT is currently an "unfairly penalised, undervalued stock"

Misperceived risks keeping investors away, says OCBC.

Investors looking to buy CWT stock should feel more confident, according to OCBC Investment Research, as it may be less riskier than it appears and will likely deliver higher earnings this year.

CWT is also looking at a trio of new and redeveloped warehouses which will drive the growth in the company's Logistics business, and possibly deliver a "substantial" 16% CAGR in Logistics core earnings over FY14-FY15, added OCBC.

Here's more from OCBC Investment Research:

Rising fair value estimate to S$1.87. We maintain our BUY but derive a new fair value estimate of S$1.87 (previous S$1.68) via SOTP. The counter is trading at 6.4x FY14F PER, representing a steep discount to its peer Kerry Logistics Network (x19.1 PER). We think this is due to over-estimation of risks in Commodity SCM and lack of clarity on earnings growth ahead. Furthermore, we believe our valuation is conservative on the following counts: 1) each business segment uses a below-average PER, 2) value of warehouse portfolio derived excludes overseas warehouses, and 3) assumed psf price is at 10% discount to similar warehouses.

Misperceived risks about Commodity SCM. We understand from management meeting that CWT fully hedges prices in its Commodity SCM business, rendering the trades back-to-back and eliminating risk of losses through adverse price movements. As CWT makes a fixed premium on a per-weight trading basis, its results are not likely to be correlated to commodity price movements. In addition, we think the sub-1% profit margin is not a concern as the returns are magnified through leverage (10.3x in FY13), yielding a reasonable 7.3% ROE.

Nevertheless, volatility in earnings is likely to come from energy products which are opportunistic in nature as compared to non-ferrous which is more towards long-term contracts. In terms of counterparty risk, we think it is reduced, though not eliminated, through dealing with mainly state-owned companies and MNCs. Overall, we think Commodity SCM business is less risky than perceived while we expect FY14 core earnings to come in higher (+%64 to S$34m) as energy products make a full-year contribution. Our estimation is well within management’s guidance that normalised earnings are between S$20m to S$50m. New and redeveloped warehouses drive to Logistics business’ growth

New and redeveloped warehouses drive to Logistics business' growth. Three redeveloped/new warehouses will receive TOP in FY14. Collectively, the trio will increase CWT’s portfolio’s total GFA by 38% to 7.2m sq ft, which we estimate to deliver a substantial 16% CAGR in Logistics’ core earnings over FY14-FY15.