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This article first appeared in The Edge Financial Daily on November 19, 2018

CJ Century Logistics Holdings Bhd
(Nov 16, 52 sen)
Maintain neutral with a lower target price (TP) of 53 sen:
CJ Century Logistics Holdings Bhd’s revenue for its third quarter of financial year 2018 (3QFY18) ended Sept 30, 2018 jumped strongly by 60.4% year-on-year to RM116.3 million. This was mainly due to higher sales contributions from its procurement logistics segment, as it secured additional export orders for assembly of electrical products, namely televisions, air conditioners, and refrigerators. During the quarter, its top line for the total logistics segment also increased by 13.7% to RM70.5 million. Meanwhile, its new courier segment jumped 89.4% quarter-on-quarter, as it consolidated its courier business with CJ Korea Express Malaysia Sdn Bhd, which was acquired in 2QFY18.

The procurement logistics segment recorded a stronger earnings before interest and tax margin of 9% in 3QFY18 of RM3.8 million (3QFY17: 7.6%) as it saw strong pickup from its export orders. Its total logistics segment, however, reported a softer margin of 5.2% in 3QFY18 to RM3.7 million, which, we believe, was due to competitive warehouse rental rates in the Port of Tanjung Pelepas in Johor. The group’s start-up courier segment continued to record losses of RM1.8 million during the quarter.

We believe the procurement logistics segment is expected to remain strong in FY19 as it secures more orders for electrical assembly to be exported mainly to Vietnam. Meanwhile, its courier segment is only expected to break even by 2020. To date, it has bought a total of 180 trucks for its 18 distribution centres. It plans to ramp up its fleet size to 250 trucks and 23 branches by end of the year.

Progress of the new multi-storey warehouse in Setia Alam improved from the 44% stage of completion in July to 75% as at November 2018. We understand the targeted commercial operations’ date for the new multi-storey warehouse is further delayed to August 2019.

We maintain our earnings forecasts for now, though with a downside bias, and reduce our price-earnings multiple to 15 times from 20 times as we expect higher operational expenses from its courier segment, which may be a drag on the group’s earnings in the early years of operations. Consequently, our TP is reduced to 53 sen from 70 sen. — PublicInvest Research, Nov 16

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