Century (HOLD, Downgrade) - Disappointing Result

Date: 20/11/2017

Source  :  Affin Hwang Capital
Stock  :  CJCEN       Price Target  :  1.20      |      Price Call  :  HOLD
        Last Price  :  0.605      |      Upside/Downside  :  +0.595 (98.35%)

Century reported lower revenue and net profit of 1% yoy and 4% yoy respectively in 3Q17. Net profit fell 16% yoy to RM11.7m, which constitutes 55% of consensus and our previous FY17 forecasts of RM21.1m. Lower earnings YTD is mainly due to the slower activities for both total logistics and procurement logistics services segments. With results below our estimates, we cut our EPS forecasts by 40-49% in FY17-19E. We downgrade our call to HOLD from Buy with lower 12M DCF-based TP of RM1.20.

Earnings Down 16% Yoy in 9M17

Century’s net profit decreased from RM14.0m in 9M16 to RM11.7m in 9M17, mainly due to lower revenue for both core business segments. Total logistics revenue declined by 3% yoy, whilst procurement logistics revenue fell 13% yoy. Century expects the prospects for the logistics sector to remain challenging for the remainder of this year. Hence, the company has been focusing on providing value-added logistics solutions to its customers and improving cost efficiencies. This note marks a transfer of analyst coverage.

Better Qoq Earnings in 3Q17

Despite recording a slight revenue increase of 1% qoq to RM72.5m in in 3Q17 from RM71.9m in 2Q17, net profit increased significantly by 28% qoq to RM3.9m in 3Q17. This was mainly due to higher interest income of RM1m, which offset the start-up costs for its parcel delivery operation amounting to RM0.3m incurred this quarter. Century plans to roll out the parcel delivery services by 1Q18. We cut our EPS forecasts by 40-49% in FY17-19E due to i) lower-than-expected earnings, ii) competitive business environment and iii) additional operating costs incurred for its new business segment.

Downgrade to HOLD

We downgrade our call to HOLD from Buy as current PER is not attractive following the cut in earnings. However, long-term prospects are good given i) upcoming revenue stream from the parcel delivery service, ii) potential new customers for its logistics services and iii) opportunity to leverage on the extensive network of its major shareholder, CJ Logistics Group. Our DCF-based TP is lowered to RM1.20, providing limited potential upside of 8.8%.

Source: Affin Hwang Research - 20 Nov 2017

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