The in-depth analysis on $Cogent(KJ9.SI)

The in-depth analysis on $Cogent(KJ9.SI)

This column is jointly written by @fayewang, @gordon_ong and @J_Chou
-Faye is both a fundamental analyst and economist by nature. She is a global thinker who’s open-minded and enjoys learning from the market.
-Gordon has a demonstrable interest in equity investments, financial markets, and negotiating deals. As @NTUInvestmentClub president, he has an understanding of what factors drive an organisation’s success.
-Jay has an interest in global macro trends, financial markets and equity research and enjoys applying a combination of the three in his investments. His eventual investing goal is to manage a risk parity portfolio and achieve true financial freedom.

Recent News

31 May – Establishment Of Cogent Chemical Logistics Pte Ltd Subsidiary, To Provide Value- Added Logistics Providers And General Warehousing. Paid-Up Share Capital = $30,000.
12 May – FY17 Q1 Results
11 Apr – AGM
11 Apr – FY 16 Annual Report
7 Apr – Corporate Updates: 1. Container Depot On Jurong Island Is Completed And Fully Operational 2. Gantry Crane System At Cogent 1 Logistics Hub’s Sky Depot Is Completed And Fully Operational 3. Phase 2 Of Warehouse In Port Klang Free Zone Is Completed And Will Be Fully Leased To A Single Tenant For 3 Years
27 Feb – Cogent Awarded 2.5 Ha Land In Jurong Island To Build Full-Fledged
Container Depot

Business Model

Cogent Holdings Limited, an investment holding company, provides logistics management services in Singapore. It operates through Transportation Management Services, Container Depot Management Services, Automotive Logistics Management Services, and Warehousing and Property Management Services segments. The company operates a fleet of approximately 100 prime movers 400 trailers; and manages and operates approximately 3.8 million square feet of storage space. Cogent Holdings is 79.78% owned by the Tan family.

Segment Analysis

Statistics source: Cogent Holdings FY16 Annual Report

The Transportation Management Services segment offers laden and empty containers, dangerous goods, project cargoes, break-bulk cargoes, out of gauge cargoes, port clearance, police escort coordination, freight-coordination, and dry hubbing services, as well as warehouse management and heavy lifting services. Cogent’s customer base is local and international corporations in the steel, construction, marine, and OPEC industries, as well as third party logistics service providers. In 2016, Cogent’s transport team handled approximately 79,000 TEUs of containers and made close to 5,000 trips.

The Container Depot Management Services segment offers storage, handling, washing, and repair of empty containers. Cogent also has a dedicated fleet of trucks to transport empty containers, and adopt Electronic Data Interchange (EDI) for information flow. Taking into account the recently awarded land plots in Jurong Island and Tuas South, Cogent will have a combined container storage capacity of approximately 30,000 TEUs in Singapore.

The Automotive Logistics Management Services segment processes, transports, and stores motor vehicles. Cogent has 5 storage facilities across the island with the capacity to store up to 3,000 cars. Cogent has developed strong working relationships with various government agencies.

The Warehousing and Property Management segment rents warehouses; and provides warehousing services, such as packing, drumming, and other ancillary services, as well as offers property management services. Cogent manages and operates approximately 3.8 million square feet of warehousing and commercial property spaces, notably including The Grandstand. Warehouse and Property Management form 42% of Cogent’s revenue and 53% of operating profit.

Cogent 1. Logistics Hub is an integrated warehouse with a sky depot. The hub is capable of supporting a full suite of logistics services encompassing transportation, warehousing and container depot within a single facility. By integrating warehouse and container depot in a single building, the transport cycle and waiting time are shortened for Cogent’s customers (see image). The strategic location of Cogent 1 means that it is close to both the current Jurong Island as well as the future Tuas Mega Port. High volume of deliveries can be made simultaneously within minutes. Cogent has also been awarded with a long-term land lease to operate a similar multi-purpose logistics hub concept that is designed to support manufacturing operations on Jurong Island.

Current Demand & Supply for Service

– Overall oversupply of warehouse storage space for Singapore market. Introduction of new warehouse space in 2017 and tapering demands due to lacklustre container throughput through Singapore

+ However, growing demand for one-stop logistics (transportation, loading/unloading, warehouse storage and container storage) near Jurong Island. Initial revenue numbers and storage occupancy in newly built Cogent 1. Logistics Hub are positive indicators.

+ Future JICD will be the only container depot located at Jurong Island, thus monopolising demand.

– However, might self-cannibalise demand for Cogent 1. Logistics Hub services which is also coming from Jurong Island.

+ Recently increased demand for container storage and repair from Malaysia, especially at Port Klang where Cogent is operating. Port Klang has seen 10.8% increase in container throughput in 2016. Cogent’s diversification into Malaysia reduces its geographical concentration risks if OBOR creates changes in maritime trade routes.

+ Recently increased demand for vehicle storage and transportation services from O&G, manufacturing and shipping players in Singapore

Future Expansion

The container depot Jurong Island is now fully operational and has already translated into stronger revenue growth for Cogent’s Container Depot Management Services in 1Q17, with the company announcing an impressive 42% growth from 1Q16. The growth was also partly attributed to increase in demand at their depot in Port Klang, Malaysia.

Looking forward, the most exciting development will be on the Jurong Island Chemical Logistics Facility project, which is expected to be complete in 2018. Jurong Island has long faced an issue of strong demand and short supply of logistics services. Hence, with the island’s chemical cluster output estimated at around S$100 billion, the outlook seems rosy as the lack of competition due to high barrier of entry would likely translate into significant revenue growth for their Warehousing and property management segment upon operation of the facility.

Important Stock Information

Data source: Capital IQ & ShareInvestor

For Cogent, the company has decreasing P/E in recent years and seems to keep the downtrend in the near future according to Capital IQ. Congent’s lower P/E ratio than the industrial average indicates it has been undervalued. At the same time, Cogent delivered its shareholders increasing earning per share over five years.

Financial Performance

Operating Performance

Cogent’s revenue has been increasing steadily since 2014, with all measures of operating performance seeing improvements. Significantly, EBITDA has jumped from S$36.4 million in 2014 to S$50 million in 2016 (CAGR of 17%) with EBITDA margin improving from 30.7% to 36.6%, signifying management’s successful strategy of innovation-led growth.

Graphs from: Cogent Holdings FY16 Annual Report

On the back of overall revenue growth across all operating segments and increased operational efficiency, net income has consequently improved year on year, from 24.7M in FY14 to 32.1M in FY16 with CAGR of 14.1%.

Cash Flow Position
Cogent has consistently generated free cash flow since FY14, with current cash holdings at S$61.2M. However, increase in FCF of 12.7M in FY16 could be partly attributed to no dividend payment made for that year due to prudence. Investing cash flow looks to be increasingly negative over the next two to three financial years mostly due to expenditure on Jurong Islands Logistics Facility….


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