Century Logistics’ 1Q18 was below expectations. Net profit fell 49% yoy to RM2.5m in 1Q18, mainly due to start-up losses for its new courier services (CS) business and higher cost for its total logistics services (TLS). Its procurement logistics services (PLS) saw a surge in sales and earnings on higher activities and export sales. We expect logistics demand to pick up in 2H18 as consumption spending rise with the abolishment of GST. We reiterate our BUY call with 12M DCF-based TP of RM1.20.

Below Expectations

Century’s net profit of RM2.5m (-49% yoy) comprises 14-15% of consensus and our fully-year forecasts of RM16.6-17.5m. The start-up losses for the CS business that started in 1Q18 were higher than our expectation. We expect lower losses in subsequent quarters as the business ramps up. But there risks to our earnings forecasts if the losses remain high for the CS business.

Strong Revenue Jump

Revenue jumped 31% yoy to RM92.7m in 1Q18, mainly driven by its PLS segment (+234% yoy to RM30.9m). But its TLS segment saw a 2% yoy decline in revenue to RM60.7m. There was a maiden revenue contribution of RM1.2m from its CS business in 1Q18. But the surge in operating costs by 42% yoy in 1Q18 led to a 49% plunge in PBT in 1Q18. Century incurred higher costs for certain TLS contracts and start-up costs for CS business in 1Q18.

Business Expansion Phase

Century is ramping up its CS business by tapping on its parent CJ Logistics Group’s customer base and complementing the latter’s nationwide network. Century added 2 new multinational companies as its customers for its TLS business in FY17. The expected completion of its new multi-storey warehouse in Setia Alam with state-of-the-art parcel distribution facilities by end-2018 with support the expansion of its CS business.

Maintain BUY

Century faces a challenging environment in the logistics sector currently. But the abolishment of GST from 1 June is expected to drive consumption spending and logistics demand. Current FY18E PER of 16.8x is undemanding as it is supported by 3-year EPS CAGR of 16.4x in FY18-20E. BUY.

Source: Affin Hwang Research - 18 May 2018