Century Logistics is on the cusp of transforming from a total integrated logistics pure play to an emerging parcel delivery provider by leveraging CJ Korex’s strong parentage as Korea’s largest logistics provider. Riding on the exponential growth potential in e-commerce and the digitization 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. We initiate coverage with a BUY and a 12M TP of RM1.70.

Expansion Into Parcel Delivery Services

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 CAGR on the back of 53% CAGR in sorting capacity for FY18-20E. We expect the segment to scale quickly and become Century’s second largest EBIT contributor by 2022.

Warehouse Expansion to Underpin Earnings

Tapping into the operational strength of CJ Korex, we see room for sales expansion via the development of new client base with concerted marketing efforts to Korean MNCs. 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 multi-storey warehouse in 2018, Century is set to increase its storage footprint by 16% to 2.7m sq ft, enhancing its appeal as one of Malaysia’s largest storage solutions provider.

Initiate Coverage With a BUY and TP of RM1.70

We are excited with the emergence of CJ Korex as a major shareholder in Century, and its vision to transform Century with the new venture into Parcel Delivery Services, at the same time strengthening its core logistics offerings via operational consolidation to achieve scale and expansion in client base. We value Century using a DCF-methodology, and derive a 12M TP of

RM1.70. CJ Korex’s entry price of RM1.45 should also provide support for near-term valuations. We initiate coverage on the stock with a BUY rating, for a potential upside of 43% from the current levels.

Source: Affin Hwang Research - 19 May 2017