Stepping back to move forward. With the recent leadership changes at MRI, as well as the dampening of demand from China, we now think our previous expectations on growth execution were too optimistic, especially in the nearer-term. We cut our FY13-FY15F estimates by 20%/13%/10%. Share price has corrected by almost 25% since May. We think this is overdone and represents an attractive entry point, taking a longer-term view. Maintain BUY with a lower TP of SGD1.90.

Growth on commodity trading impacted by weaker demand. We are now expecting overall yoy volume growth for this segment to come in around 30%, as increases from market share gains and naphtha, a new product, will be weighed against overall weaker demand in China, where most of MRI’s customers are. Part of that we believe is linked to speculative buying is being pulled back as liquidity tightens.

Margins also lower on muted volatility. CWT does not take any price positions on the products, instead it earns a spread selling to customers. However, with lower overall demand and volatility, customers are reluctant to pay significant premiums on market prices, resulting in lower margins for MRI. Together with startup-costs in new offices for 1H13 and a one-time estimated SGD5m restructuring cost associated with change of leadership, we expect lower margins for MRI.

Other businesses remain robust. Warehouse rental rates have risen by 8% in the past twelve months, and capital values by 34%. We believe our assumption on the value of CWT’s warehouse portfolio is conservative. Two new warehouses coming on stream by 1Q14 will add around 15% to CWT’s local warehouse space managed. We believe rental rates in Singapore will remain firm, even with 20% supply coming on stream between FY14-FY16, given current occupancy of 93%.

Opportunity for entry, Maintain BUY. Share price has pulled back to a level below its warehouse portfolio and financial assets value. We see this as a great entry opportunity, as downside risk is very low. Excluding MRI, the company is in a net cash position of SGD36m. Our new TP of SGD1.90 reflects lower earnings estimates but still present an upside of 30% from current levels.

Source: Maybank Kim Eng Research - 3 Jul 2013