We expect earnings growth from its logistics business to overshadow poor trading profits in FY14. We upgrade the stock from Neutral to Outperform, with an unchanged target price based on 9.1x CY15 P/E (its mean post-MRI acquisition). Catalysts are expected from the opening of new warehouses in FY14-15 and a recovery in soft commodities logistics.

What Happened 
CWT's share price has fallen from S$1.40 on 6 Nov prior to the release of its 3Q results to S$1.27, as investors reacted to weakness in its trading segment (MRI), which barely turned profitable. MRI's weakness stemmed from: 1) thinning margins as a result of low trading volatility and 2) rising finance costs to fund bigger trade volumes as CWT built up its naphtha portfolio. CWT also pared down its stakes in CACHE SP, AAREIT SP and CREIT SP, which the market viewed negatively as CWT has given up a stable stream of income.

What We Think 
Despite poor trading profits, we project 8% earnings growth for FY14 as its logistics operations should that its core logistics business could be worth up to S$832m on a standalone basis, which implies a share price of S$1.39 (9% upside from current levels).

What You Should Do 
We believe the stock has been oversold. It is trading at 0.5 s.d. below its historical mean P/E of 9.1x post-MRI acquisition. CWT used to trade at a mean P/E of 9.4x before it bought MRI. Investors never really liked MRI and the market merely ascribed a mean P/E of 5.4x to MRI even when its earnings peaked. Of our S$1.49 target price, 93% comes from CWT's old logistics business. As the stock is trading even below our appraised value for its stable logistics business, we believe there is a buying opportunity