OCBC Report 23 Jun 14

KEY IDEA CWT Ltd: Expect limited impact from Qingdao commodity scandal Recently Dagang bonded warehouse at Qingdao Port was being investigated for the fraudulent practice of pledging single batches of metals as collateral for multiple loans. CWT’s revenue exposure to Qingdao port comes from collateral management service under its Logistics segment, which we understand from management is negligible. Thus, we do not expect Logistics earnings to be adversely affected. The incident’s indirect effects, through tighter credit and moving stocks offshore, will lower liquidity and commodity trade flows. We examined a similar steel-for-loan fraud in 2012 and found that the shock factor to market and impact on physical trade flows lasted only a few months. We think it would be similar this time round unless the probe widens significantly. Moreover, given that CWT’s Logistics revenue exposure to China is less than 3%, we think the segment will be little affected by the systemic impact. Maintain BUY with S$1.92 fair value estimate.(Yap Kim Leng)

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