Stock Review: CWT Limited

During the Singapore budget speech, our finance minister announced that the logistics sector will receive some help and so my attention shifted to look at logistics companies. A friend suggested to check out CWT Limited, which I did, and here I am summarising some of my thoughts about the company.

On the surface, the company has no red flags. Based on SGX data on 23 Feb 2015, share price $1.67, healthy P/E ratio of 8.4, P/B 1.24, yield 4.4%, all other ratios looked average, though the debt is on the high side (>$1 billion).

I read through the website, financial reports, and tried to look for their income driver because their revenue is undoubtedly impressive at $15 billion for a company their size. I was given the impression that they relied a lot on trade income, although they have rental and services income as well. As I still could not really understand how the business model was for trade income, I tried to compare the reports to look for differences in reporting, hoping to find out whether there was anything that the company will try to hide from a press release for example.

Operating Margin

There was something interesting I noticed that was missing in the press release, but present in the presentation slides -- operating margin. Operating margin reduced from 1.2 in 2013 to 0.9 in 2014. That helped me to explain why its profit was a lot lower than its revenue. I really wonder how this is called efficiency if every $100 of sales collected translates to 90 cents of profit.

Revolving short-term debt

The other really strange disclaimer in the presentation slides was two separate line items to report debt -- "revolving short term trade facilities" and "net debt". "net debt" was defined as excludes "revolving short term trade facilities", so the net debt to equity ratio looks smaller. 

Extracted from CWT Presentation slide 9

I spent a few minutes re-reading the table and unaudited statement of accounts to try to figure out what it was trying to show and I realised that the charts were actually showing an increasing debt in a pretty smart way. Debt has increased from $392 million to $1.431 billion which is 3.65 times in the last 4 years. Being able to borrow more is not necessarily a good thing.

Extracted from CWT Presentation slide 9

In lay man terms, the company buys and sells commodities (metals and by products) and earns from the differences. This accounts for majority of its revenue (92%).

Extracted from CWT Presentation slide 5

With such a thin profit margin, this company reminded me of Groupon. Groupon brought in more than US$1 billion yet could not turn in any profit.

The writer does not own shares in any companies mentioned.