CWT, the largest Singapore-based logistics company, is a key beneficiary of the Singapore recovery story. Given its size and financial clout, it is able to set the tone for warehouse rental rates, which is likely to increase in the next 12 months as demand returns. With the economy improving, CWT, which has successfully monetised its assets by selling them to REITs, will also have ready buyers for its facilities. Moreover, valuations are attractive from numerous angles – historical and peers’ P/E (11.9x and 8x respectively), as well as earnings growth (36% CAGR).Initiate with BUY recommendation.

Largest in Singapore and still growing. CWT manages 7.1m sqf of warehouse space in Singapore and abroad. In particular, it has 5m sqf of space in Singapore, making it the largest logistics player. With the sprawling warehouse space it manages, CWT can offer convenience to its clients by having all the goods stored at one location. The dominance of CWT can be seen by the leading position in the various niche areas it is involved in, such as chemical and commodity logistics.

Facilities are fully utilised; potential upward rent revisions. Save for its new mega warehouse, all other facilities are fully utilised and will continue to be in the foreseeable future. We expect rentals to appreciate ~10% over the next 12 months, which augurs well for CWT.

Potential of sale to REITS. When the property market recovers, CWT may sell off some of its warehousing assets to the REITS, thereby monetising its assets for new investments and possibly recognising gains from such transactions.

Initiate with a BUY. Stripping away the exceptional items, FY09 earnings would have increased by 49% over the previous year, attributable to revenue contribution from Commodity Hub and savings from the job credit scheme. We are ascribing a target P/E of 9x to our FY10F EPS, a discount to its 3-year historical average of 11.9x. This works out to a fair value of S$0.66, representing an upside of 33.3%.