Century Logistics Malaysia - A New Century Begins

Date: 09/01/2018

Source  :  MAYBANK
Stock  :  CJCEN       Price Target  :  1.08      |      Price Call  :  HOLD
        Last Price  :  0.64      |      Upside/Downside  :  +0.44 (68.75%)

Initiate with HOLD

Century Logistics is one of the largest logistics operators in Malaysia. In the medium to long term, it offers exposure to parcel delivery, which will ride on the growing importance of e-commerce. Initiate coverage at HOLD and DCF-based TP of MYR1.08 (WACC: 8.9%, LT growth: 2.0%).

The bread and butter

Century is in the business of total logistics and procurement logistics, which accounted for 78%/21% of FY16 EBIT respectively. Century manages about 2.3m sq ft of total logistics warehouse space of which 1.5m sq ft is self-owned. Its top 5 customers account for >50% of total revenue. The completion of its 3-storey warehouse in Klang by end-FY18 will add a further 0.45m sq ft (+20%) of warehouse capacity.

New venture: Parcel delivery

The key growth driver in the medium to longer term is its up-and-coming parcel delivery business. According to Euromonitor, Malaysia’s internet retail sales trends have been encouraging and it has grown at a quicker pace of 29.7% 5-year CAGR (2011-2016) vs. the overall retail market of 3.1%. With support from Korean giant, CJ Logistics, which is now a major shareholder with a 31% stake, Century will expand rapidly; it is targeting 100 branches and 500 trucks by 2020. We forecast revenue growth of +14.6%/+16.9% for FY18/19E, mainly driven by the parcel delivery business. At the core net profit level, we forecast growth of -29%/+11%/ +4% in FY17-19E. In the initial years, we believe Century will see start-up costs and a pick-up in opex.

Fairly valued for now

Our DCF-based TP (WACC: 8.9%, LT growth: 2.0%) implies 23.4x CY18 PER. Valuations are fair at this stage relative to a peer average of 17.4x (excluding GDEX), but there is room for upward re-rating, in our view, as its last mile parcel delivery business, which is currently in an infancy state, contributes more meaningfully to the group’s future earnings. Key risks to our call include execution risk (eg. large-scale expansion) and pick-up in competition.

Source: Maybank Research - 09 Jan 2018

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