Cogent Limited

Understanding the Company
Have three main divisions

1) Transportation management serviceThey provide transportation services to companies such as transporting of empty containers between designated destinations such as from the port to warehouse. They transports heavy export/import goods like oil and gas equipment and oil rigs parts.
Other services include important retrieval and transportation services such as the transportation of petroleum and chemical products from Jurong Island, and freight coordination services such as documentation of trade.

2) Warehousing Management ServicesThey provide storage space for electronic components (microprocessors etc), non-perishable items and other general products.
They also are licensed by the National Environment Agency (economic moat) to store a wide variety of chemicals and hazardous materials at some of their warehouses where they manage it safely and professionally. An example, they keep the chemicals/petroleum in steel drums and store tons of these drums in their warehouse using forklifts. Some in house advantage is that they have a very large premise to store these drums and they are able to stack it such that it optimize the space used.

3) Automotive Logistics Management ServicesThis division focuses on processing, transportation and storage of cars, trucks, vans, motorbikes, assisting customers (such as individual or businesses) with port and customs clearance, vehicular transportation, warehousing and delivery.
Licensed by the Singapore Customs to store dutiable motor vehicles on multiple sites under one Licensed Warehouse license, which allow them to store vehicles at a site closest to our customers (added value).
Also involved in Export Processing Zone operations which include the de-registration process and export of second-hand motor vehicles.
Lastly involved with the Land Transport Authority in the repossession of cars which have outstanding road taxes and the impounding of cars that are modified without permission and the Singapore Police Force in removal and towing of accident vehicles.

Company in a nutshell: They provide transportation services and warehouse storage/management

What makes them tick: Container traffic in Singapore, to put it simply, the more activities there are in the trade sector in Singapore the more it benefits the company. Subjected to world recovery and prosperity, vulnerable to both local and other countries’ recessions (this other countries refer to major trading partners with Singapore).


Good Points
EM=Economic Moat
GFP= Good Future Prospects?
IA= Industry attractiveness
Cogent has more than 30 years of operating history and is one of the leading full service logistics management services providers in Singapore offering Transport management service. (EM)
One of the largest depot premises in Singapore located in a single location which can store more than 20,000 TEUs. (EM)
They have a fleet of more than 100 prime movers, trucks and Lorries and over 400 trailers, and manage and lease up to approximately 4 million square feet of warehousing space and premises as part of our warehousing and container depot management service (EM)
Joint Ventures with companies from other countries can be seen as a further growth element, the latest one is with Win Container Logistics Ltd (“JW”), a company incorporated in the British Virgin Islands, to jointly set up a new business operation and working together to offer and deliver a range of container depot services in Singapore and other regions (GFP)

Financial FiguresBalance sheet very healthy, with total cash more than both current and long term liabilities, no signs of intangible assets/goodwill making a big part of long term assets, all receivables and liabilities decline from 2009 as well.
Cogent’s current ratio is 2.2 times, price to book at 1.5 times (based on share price of 0.14)

Cash flow from operating activities remains very strong since 2008; I personal like a low capital expenditure, very low purchases of equipment and machinery as seen in the cash flow under operating activities.

Their net profit margin history in
2008: 11.64%
2009: 29% (sold assets that is why so high, a one off event)
2010: Estimated to be roughly: 12-14%

Both Freight Links and Poh Tiong Choon are competitors of Cogent and trading at 8-9x their PE.
Cogent at 0.14cents trades at less than 6x times PE, I wonder why? Some traders tell me, it’s because they are new to the market and that the export/import industry given the Singapore export data for November in 2010 was terrible biggest drop since 2002 so all logistic related stocks also drop.

What are they going to do/did with the IPO money?
According to the CEO of Cogent, he says that the Singapore Government’s initiative to establish (IA) Singapore as a global integrated logistics hub, they intend to use S$6.1 million of the IPO proceeds in expanding their container depot and warehouse capacity, as well as consolidating all of their warehouse facilities in various locations into a standalone logistics hub, they also plan to reinforce their position as a leading integrated logistics player in Singapore by using approximately S$2.0 million of the IPO proceeds for expanding their vehicle logistics operations.

Pre IPO information: The Company intends to pay dividends of at least 50% of its FY2009 profit attributable to shareholders and at least 20% of its profit for FY2010. My forecasted yield will be 8-9% for FY2009. At the listing price of $0.22, the company is listing at a historical PE of 5.27x.
Post IPO: The Company pays out its dividend quarterly for example the interim dividend of 1.39 Singapore cents per ordinary share issued 26-Mar-2010 and another 1.39cents on 11 August 2010.

Dividends matters
Now 2009 net profit was 17million, expected net profit for 2010 is 7.6million (take 3.8m half year figures times 2) = 24.6million in total. There are 319million shares (After IPO)
50% * 17million + 20%* 7.6million = roughly 10million
Given that they already paid out 1.39 in the first two quarters, therefore 8.868million (1.39cents *319million share times 2) is gone, left 1.1318million to give away. This will only yield 2.53% for the remaining quarters. Not attractive as of this writing (23rd Dec 2010), if I were to buy the share now (price as at $0.14)

Points for concernCogent has already paid out half of its promised dividends since IPO, now the question is whether they will continue to do so, in the future.

Taking into consideration that this company is very new to the market, not sure as to whether they are really a low capital expenditure company, such is the risk that they might just buy a lot of machine in the next 4 years or so in just one shot.

No track record.

What are the reasons for them to call for an IPO in 2010 and yet decide to give a chunk of it back to shareholders?

What is the future growth for the company?

One of my major concerns is the issue of using the listing as an exit strategy for major shareholders like Mr Tan Yeow Khnoon. Are there any facts to suggest that he is dumping his company stocks? On 1st Sept 2010 Mr Tan Yeow Khnoon increased his shareholding from 53.65 % to 53.74%, I’m like “Wao Lao can buy more or not, show me a clearer sign that you are confident in your company! (Undetermined)

Why does the stock market price the company from 22cents to 14 cents? Ans: Some of my trader friends also believe that the company cannot match its tremendous growth in profit in 2009 (because they sold their assets) hence the drop in price and also as mentioned just now, the terrible export November figures.

This is a company in a cyclical, highly exposed to business cycle industry.

Verdict: Buy two lots. Go check out their management.
Sell if, no confident in the management, sell if any of the major shareholders start dumping the stock. Risk that I’m taking is that I’m violating Warren Buffet’s 2nd and 3rd law in value investing (proven track record) and (understanding the industry)