Century reported core net profit of RM8m (-52% yoy) in 2018, which was below market and our expectations. Its revenue surged by 36% yoy to RM401m on the back of higher contribution from all of its business segments. However, its profit margins are lower mainly due to losses from the courier services (CS) segment and lower profit margin from total logistics services segment (TLS). We cut our 2019-20E earnings by 5-15% and introduce our 2021E earnings to account for the lower-thanexpected results. Nonetheless, we maintain our HOLD call with an unchanged TP of RM0.53 as we remain positive on its long-term prospect.

Below Expectations

Century’s 2018 core net profit of RM7.7m is below expectations, comprising of 69% and 74% of consensus and our forecasts, respectively. The variance is partly due to higher-than-expected loss from the CS segment and higher-thanexpected operating costs. Its 2018 revenue was up by 36% yoy mainly due to higher contribution from TS and procurement logistics services (PLS) segment, coupled with additional revenue from its CS segment in 2018. However, 2018 EBITDA margin of 5.9% is lower compared to 11% in 2017. This is mainly due to higher costs from certain TLS contracts and ongoing costs from the expansion of the CS operation. Separately, the group has announced final DPS of 0.25 sen, bringing full-year 2018 DPS of 0.75 sen.

Core Net Loss of RM1.4m in 4Q18

Sequentially, Century reported a 4Q18 core net loss of RM1.4m compared to core net profit of RM3.2m in 3Q18. This is mainly due to a 24.4% qoq drop in revenue on the back of lower PLS revenue (-58% qoq) and TLS revenue (-9% qoq), coupled with continued losses from the CS services in 4Q18. We believe the CS segment will continue to be in the red in 2019 given fierce competition within the courier sector and current lack of economies of scale. The new warehouse in Setia Alam which is expected to commence operation in July 2019 is expected to support the group’s earnings.

Maintain HOLD With An Unchanged TP of RM0.53

Due to the weaker-than-expected earnings, we have cut 2019-20E core EPS by 5-15%, and introduce our 2021E core EPS (+48% yoy). We still like the group given its complementary networks and expertise from its parent company CJ Korea Express, which eventually will provide better earnings growth in the long run. We maintain our HOLD call with an unchanged DCF-derived TP of RM0.53, implying a 17x 2019E PER.

Source: Affin Hwang Research - 28 Feb 2019