CJ Century’s revenue is likely to grow by 22% yoy in 2019E on the back of the commencement of its new multi-storey warehouse in Setia Alam and expanded clientele base for its procurement logistics services (PLS) segment. However, we forecast 2019 earnings to grow at a slower rate on the back of a lower PLS margin and widening Courier Service (CS) losses. Overall, we expect a core net profit twoyear CAGR of 29% in 2020-21E, partly due to the low base effect in 2019E and the CS segment turning profitable in 2021E. Maintain HOLD with a lower TP of RM0.46.

Revenue Boost From New Setia Alam Warehouse

We forecast CJ Century’s revenue to grow by 5-22% p.a. in 2019-21, partly due to the opening of its new multi-storey warehouse in Setia Alam in July 2019. Currently, the new warehouse, with a total capacity of 450,000 sq ft, has a take-up rate of 50-60% with most of the space taken up by CJ Wow Shop. We believe that the group will be able to fill up the warehouse capacity given its proximity to a port and a highway. Apart from that, we expect PLS’ revenue to improve by c. 50% as the group has secured new customers, mainly from Vietnam.

Two-year Core Net Profit CAGR of 29% Over 2019-21E

We forecast 2019 core net profit to grow 5% yoy to RM8.0m. Despite the strong revenue growth of 22% yoy in 2019E, we expect group performance to be hampered by a higher CS operating loss of RM12.2m (vs. RM6.7m in 2018) due to low economies of scale. We expect the CS segment to continue to incur losses before it achieves breakeven in 4Q20. Apart from that, we expect a lower PLS operating profit margin of 5-6% (vs. 7% in 2018) on the back of higher export volumes, which typically command a lower margin. Overall, we expect a core net profit CAGR of 29% over 2019-21E mainly due to low base effect and expected turnaround of the CS segment in 2021E.

Maintain HOLD With a Lower TP of RM0.46

We cut our 2019-21E core EPS by 34-38%, mainly on higher CS losses and a lower operating margin as a result of the competitive operating environment. We maintain our HOLD call with a lower DCF-based TP of RM0.46 (from RM0.53) as we roll forward our valuation to 2020E. We believe the stock’s medium to long-term prospects are still positive given the rapid growth in the e-commerce industry.

Source: Affin Hwang Research - 6 May 2019