Century Logistics Holdings Bhd
(June 29, RM1.33)
Maintain outperform with a target price (TP) of RM1.58: We visited Century Logistics Holdings Bhd’s headquarters in Port Klang last week together with a group of fund managers and analysts. We were pleasantly surprised to discover that the e-commerce parcel business will be commencing earlier than expected with a roll-out by the fourth quarter of 2017 (4Q17). Apart from the new multistorey warehouse currently under construction, management also targets to enlarge the company size via mergers and acquisitions.
The three-storey warehouse, which has a total floor area of 450,000 sq ft, is expected to commence operations by July 2018. Piling works will be completed by next month. The company will carve out about 50,000 sq ft on the ground floor for the business-to-consumer (B2C) parcel delivery business. It will have a sorting capacity of 150,000 parcels per day and targets to achieve 100,000 parcels per day within the first three years. On the parcel rate, we understand that the Malaysian Communications and Multimedia Commission has set a minimum rate of RM5 per parcel and the current market rate is around RM5 to RM10 per parcel. For a start, the company plans to lay foundations and build on its capabilities by rolling out the parcel delivery business in 4Q17. For the remaining warehouse capacity (about 400,000 sq ft), it plans to fill up the space within the first six months.
In contrast with other parcel delivery providers who mainly focus on China’s products, Century Logistics plans to focus on delivery of South Korean products by riding on its major shareholder’s global profile. South Korean products are getting more visible in the Malaysian consumer market, driven by the increasing popularity of Korean celebrities and also cosmetics and facial products, which are selling at more competitive pricing than Japanese and European brands. A quick look into notable B2C platforms like Shopee, ezbuy and Shoppu will reveal a special section categorised for South Korean products while the second-most popular B2C platform, 11Street Malaysia, is jointly owned by a leading e-commerce operator in South Korea and Celcom Axiata. All these would be low-hanging fruits for Century Logistics while allowing it to get away from the competitive route in the China market.
The management mentioned this week that it is targeting to acquire a midsize logistics company to kick-start its courier service. It is worth noting that CJ Korea Express already had a footprint in Malaysia before taking up a major stake in Century Logistics. Its wholly-owned logistics company CJ Korea Express Malaysia Sdn Bhd owns two warehouses in Shah Alam and was established eight years ago. We do not rule out the possibility of seeing a synergistic tie-up between CJ Korea Malaysia and Century Logistics as it will not only help consolidate the logistics warehouse size and all resources for greater economies of scale, but could potentially push Century Logistics’ revenue to be one of the biggest logistics players in Malaysia.
We think the company deserves more attractive valuation, driven by the sooner-than-expected roll-out of parcel delivery business. Hence, we peg a higher price-earnings ratio of 21 times (from 19 times) to its earnings per share for the financial year ending Dec 31, 2018, which derives a TP of RM1.58 while maintaining an “outperform” call. — PublicInvest Research, June 29