Century reported lower revenue and net profit of 2% yoy and 25% yoy respectively in FY17. This was within our expectation but below market expectations. We lift our EPS forecasts by 7-10% for FY18-19E to reflect higher revenue for new customers secured. The roll-out its courier operation in 1Q18 will allow the group to benefit from the rising ecommerce transactions and drive long-term earnings growth. We reiterate our BUY call with 12M DCF-based TP of RM1.20.

Below Market Expectations But in Line With Ours

Century’s net profit of RM15.2m (-25% yoy) in FY17 was 17% below consensus forecast of RM18.4m but close to our estimate of RM15m. Revenue declined 2% yoy to RM300.3m in FY17. Total Logistics Services (TLS) operation saw external revenue reduce by 2% yoy to RM246.3m due to lower activity for its clients. Procurement Logistics Services (PLS) also saw revenue ease 3% yoy to RM48.3m due to lower activity and export sales.

Start-up Costs for Courier Services

Operating profit fell 21% yoy to RM21.3m in FY17. TLS profit declined 13% yoy to RM18.1m in FY17, mainly due to RM1.2m start-up costs incurred for its courier operation and lower revenue. PLS operation saw a sharper 45% yoy decline in earnings to RM3.3m in FY17. It is working with its parent CJ Logistics Group to expand its start-up courier services and tap on and complement the latter’s nationwide network.

New Customers Added and Higher Capex

Century added 2 new multinational companies as its customers for its TLS business. It is also increasing its capex budget to RM200m from RM150m to build new warehouses to expand nationwide network. Its new multi-storey warehouse in Setia Alam will be completed by end-2018 with a higher capex of RM120m (additional RM20m budget) to install a sorting machine to increase parcel distribution efficiency.

Maintain BUY

We continue to like Century for its good long-term prospects, 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. BUY.

Source: Affin Hwang Research - 28 Feb 2018