This article first appeared in The Edge Financial Daily on May 22, 2017

Century Logistics Holdings Bhd
(May 19, RM1.24)
Initiate buy with a target price of RM1.70: Century Logistics Holdings Bhd is on the cusp of transforming from a total integrated logistics pure play to an emerging parcel delivery provider by leveraging on CJ Korex’s strong parentage as South Korea’s largest logistics provider. Riding on the exponential growth potential in e-commerce and the digitisation of Malaysia’s retail economy, Century aims to differentiate itself with high service quality and superior efficiencies in automation. The merger with CJ Korex’s Malaysian operations could yield significant synergies, increase product offerings and expand its client base to underpin near-term earnings growth for its core operations.

Leveraging on CJ Korex’s technical competencies and established track record, Century is set to introduce its parcel delivery services in 2018 to complement CJ Korex’s strategy in extending its supply chain with last-mile delivery for logistics operations in Malaysia. With a strong go-to-market strategy, a readily available demand offtaker amid surging demand for Korean products and CJ Korex’s affiliation with local e-commerce players like CJ WOW Shop, we project a strong 71% revenue compound annual growth rate (CAGR) on the back of a 53% CAGR in sorting capacity for financial year 2018 (FY18) to FY20. We expect the segment to scale quickly and become Century’s second-largest earnings before interest and tax contributor by FY22.

Tapping into the operational strength of CJ Korex, we see room for sales expansion via the development of a new client base with concerted marketing efforts to Korean multinational corporations. The possible merger between CJ Malaysia and Century could also yield significant synergies via combined competency and cost control, aside from expanded product offerings and economies of scale. With the expansion of the new multistorey warehouse in FY18, Century is set to increase its storage footprint by 16% to 2.7 million square feet, enhancing its appeal as one of Malaysia’s largest storage solutions provider.

We are excited with the emergence of CJ Korex as a major shareholder of Century, and its vision to transform Century with the new venture into parcel delivery services, and at the same time strengthening its core logistics offerings via operational consolidation to achieve scale and expansion in its client base. — Affin Hwang Capital, May 19