This article first appeared in The Edge Financial Daily on May 21, 2018

Century Logistics Holdings Bhd
(May 18, 71 sen)
Downgrade to neutral with a lower target price (TP) of 70 sen: Century Logistics Holdings Bhd’s first quarter of financial year 2018 (1QFY18) core earnings tumbled 45.8% year-on-year (y-o-y) to RM2.6 million despite top line growing 30.6% y-o-y. The results were below our and the street’s expectations, making up only 15.4% and 15.6% of full-year estimates respectively. No dividend was declared for the quarter. The weaker-than-expected results were mainly due to a steep decline in logistics’ earnings contribution as well as continuous start-up costs related to the parcel delivery business. We slash our earnings forecasts for FY18 to FY20 by 22% to 30% after revising up our expectations for operating costs, though top line forecasts are maintained. Consequently, we downgrade Century Logistics from “outperform” to “neutral” with a lower TP of 70 sen.

The group’s 1QFY18 revenue jumped 31% y-o-y to RM92.7 million, mainly driven by a higher sales contribution from procurement logistics services (+235%) and maiden courier sales contribution of RM1.2 million. Nevertheless, the core logistics business experienced a slight dip, down 1.8% y-o-y to RM60.7 million, mainly due to the low utilisation rate of space amid competitive rental rates in Pelabuhan Tanjung Pelepas (PTP), Johor, as a result of an influx of new warehouses. In addition, one of its floating storage units in PTP was unchartered. Meanwhile, strong growth in procurement logistics services was led mainly by some new export orders for assembling electrical products, namely, fridges, televisions and air conditioners.

Compared to 1QFY17, the group’s bottom line tumbled 45.8% y-o-y to RM2.6 million. The courier service segment registered a RM1.4 million loss likely due to costs in relation to the aggressive expansion of fleet vehicles. As of now, it has bought a total of 100 trucks for its 11 distribution centres. It plans to ramp up to 300 trucks by year end. Meanwhile, earnings from its traditional logistics business halved to RM2.8 million, mainly due to weaker business volumes.

On the progress of the new multistorey warehouse in Setia Alam, it had jumped from 16.2% completion in January 2018 to 32.4% as of end-April. Nevertheless, it is still 24.2% behind schedule due to some additional changes to the structure. We think the completion of the project might be delayed to 1QFY19. — PublicInvest Research, May 18