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Sale & Leaseback deal: C & P Asia Warehousing Pte. Ltd., a wholly-owned subsidiary of CWT, has proposed a sale & leaseback deal on the sale of its logistics property at 1, Tuas Avenue 3 to Cambridge Industrial Trust (CIT). This 30year leasehold property commencing from 1 October 1979, with lease extended for another 23 years from Jurong Town Corporation (JTC), has a land area of approximately 30,682 sq m and a gross floor area of approximately 28,480 sq m.

The sale price of S$32.5m includes S$26.5m for the existing property, and S$6m for works to add an estimated gross floor area of 5,255.96 sq m (A&AWorks).

CWT will leaseback the property for a period of eight years at an initial annual rental of S$2.1m and another S$0.48m per year for the additional area upon completion of A&A works. The rental is subject to an escalation of 7% each onthe fourth and seventh year of the lease term.

The proposed S&L will enable the CWT to realise its investments while continuing to use the property for its existing operations. The cash generated will beutilised to fund for business expansion locally and in the region, as well as for working capital.

Based on the aggregate net book value of the property of S$13.755m as at endFY06, the company will realise a gain of approximately S$9m from the sale, after accounting for relevant costs.

More gain from S&L: As mentioned in our last report dated 20 July 2007, only two, and now coming to three, of its warehouses are under the S&Larrangement. There are possibilities for more S&L arrangement which may furtherboost earnings and able to provide capital for further expansion.

New development in China and Ukraine: CWT is expanding its warehouse facilities in China by developing an integrated logistics hub in Tianjin to be completed by end 2008. This new hub will comprise of a 110,000 sq m ramp up warehouse and a 40,000 sq m container depot. Another 86,000 sq ft new warehouse in Shanghai should be developed by end 2007.

Higher operating cost: Although S&L helps to free up cash and capital for business expansion, CWT loses the flexibility over the ownership of the properties. CWT will also likely pay a higher rental rate to the buyer (i.e. CIT) than to JTC and thus increase the operating cost. However, CWT is able to mitigate this through higher lease rate and better returns from new projects.

Revised forecast: We are raising our earning forecast for FY07 by 28% to S$32.3m as a result of the S&L. Sales and operating profit forecasts remain. We increase the EPS for FY07 from 4.4cts to 5.6cts and FY08 remains at 5.2cts.

Recommendations: We have a price target of S$1.19 for CWT, based on a 20% discount to its average historical PE of 28x. Our new target price represents a 17% upside from the current share price of S$1.01. Upgrade to BUY.