• Revenue and net profit were in line with our expectations
• Ongoing Voluntary Cash Offer of $1.02 from COSCO
• Offer Price is unjustifiably low
• Reiterate our $1.12 valuation and recommend shareholders to Reject the Offer

The positives

• Better cost control helped to mitigate the YoY higher opex. Staff cost (largest cost component) and rental on leased premises (second largest cost component) were 2% and 5% YoY lower respectively.

The negatives

• YoY higher opex out-paced revenue growth, resulting in lower EBIT margin from 29.7% to 27.9%. Main contributors to the higher opex were 33% YoY higher depreciation (fourth largest cost component) due to commencement of certain container depot facilities since May 2017, and 15% YoY higher contract services (third largest cost component) mainly due to higher container repair and maintenance cost and increased security cost.
• YoY lower NPAT, but it was within our expectation. The lower NPAT did not come as a surprise, as were already forecasting YoY higher opex for 3Q, after observing two sequential quarters of YoY higher opex in 1Q and 2Q.

Outlook

The outlook is positive. Earnings growth in the pipeline to come from the Jurong Island Container Depot (JICD) project and to a lesser extent, the student hostel at 362 Holland Road. As described in our previous report, it is inevitable that Cogent becomes consolidated as a subsidiary of COSCO SHIPPING International (Singapore) Co. Ltd. (COSCO). Thereafter, potentially benefiting from COSCO’s intention to develop Cogent into a regional logistics player.

Reject the Offer; take partial profit and hold out for a failed delisting

We reiterate our $1.12 valuation for Cogent, which is 10% higher than the Offer Price. As outlined in our previous report, the Offer Price of $1.02 is uncompelling, in our view. The Offer Price for Cogent is only 14.9x price-to-trailing-earnings, whereas the Offer Price for arguably Cogent’s closest peer, Poh Tiong Choon Logistics Ltd, was at a much higher price-to-trailing-earnings multiple of 23.0x. Our recommendation remains unchanged – minority shareholders should take partial profit to avoid tying up capital while the Offer remains open and to Reject the Offer.

The remaining capital invested in Cogent will resemble a call option. If the delisting is successful, minority shareholders will receive $1.02 anyway. If the delisting fails, minority shareholders will remain shareholders of Cogent, a listed-subsidiary of COSCO.