CJ Century Logistics - 4Q18 Below Expectations

Date: 28/02/2019

Source  :  MAYBANK
Stock  :  CJCEN       Price Target  :  0.50      |      Price Call  :  HOLD
        Last Price  :  0.40      |      Upside/Downside  :  +0.10 (25.00%)

Maintain HOLD

4QFY18 earnings were lower YoY and below ours and consensus’ estimates. We maintain our FY19E and 20E earnings forecasts as we have already accounted for higher start-up costs ahead. We introduce our FY21 forecast. Maintain our HOLD call with an unchanged DCF-based TP of MYR0.50 (WACC: 9.4%, LT growth: 2.0%).

Below expectations

CLH’s 4Q18 net profit came in lower at MYR0.7m (-80% YoY, -82% QoQ), taking FY18 net profit to MYR9.9m (-35% YoY). This was below both our expectation and consensus at 76% of ours and consensus’ full-year forecast. The underperformance was largely on account of higher costs incurred at its courier services segment as the Group continues to expand its operation. The Group declared a final dividend of 0.25sen, bringing FY18 DPS to 0.75sen (FY17: 1.5sen).

Higher 4Q18 revenue despite lower bottomline

Its 4Q18 revenue was higher at MYR87.9m (+11% YoY, -24% QoQ). The increase was due to (i) stronger growth of 18% YoY at its procurement logistics operation on higher export sales to the Vietnam market; ii) maiden revenue contributions from its courier service arm of MYR5.7m in 4Q18 (vs. zero in 4Q17, +89% QoQ). Overall, the Group’s 4Q18 operating profit margin declined further to 1.6% (from 5.4% in 4Q17 and 4.9% in 3Q18) on higher start-up costs.

Earnings forecasts remain unchanged

We still maintain our FY19E and FY20E earnings forecasts assumptions for now despite its underperformance in FY18 as we have already factored in a projected an increase in on-going expansion costs of its courier operation. This would come from (i) additional number of trucks to around 400 trucks this year from 220 trucks last year. The Group is also expected to (ii) install new machines in three phases and (iii) open new branches. On the positive side, we expect contribution from its procurement logistics to expand further on new international customers, organic volume growth for its courier operations from expanded networks as well as higher capacity and utilisation of its new warehouse in Klang from July FY19 onwards.

Source: Maybank Research - 28 Feb 2019

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