We recently visited CJ Century’s warehouses in Port Tanjung Pelepas (PTP). There are five warehouses with total storage space of 855k sq ft located within the port’s free-trade zone. We gather that the operating environment remains challenging partly from low warehouse utilization and excess warehouse capacity. We remain cautious on the stock given longer gestation period for its courier service expansion and competitive operating environment in the logistics sector. Reiterate SELL.

Port Tanjung Pelepas

PTP has a total container capacity of 12.1m TEUs currently. In 2018, its cargo throughput grew 6% yoy to 8.9m TEUs. 95% of the containers handled by PTP are for transhipment, while the balance is gateway cargo.

Made Up of 32% of CJ’s Total Warehousing Space

CJ Century (CJ) has 5 general warehouses in PTP’s free-trade zone with total storage capacity of 855k sq ft (makes up 32% of its total warehouse capacity of 2.7m sq m in Malaysia). Its operation in PTP includes crossdocking services and freight forwarding. Cross-docking services include sorting and consolidating imported pre-finished goods and raw materials for exports to its final destination. Typically, the goods handled by CJ in PTP are industrial products, eg, fabricated steel products and furniture.

Utilization Remain Low

We gather that the average occupancy rate for its warehouses in PTP is about 60-70%, partly due to oversupply of warehouses. Total warehouse space in PTP has grown to over 6m sq ft in 2019 compared to 3.6 m sq ft back in 2013. Apart from that, some of multi-national companies (MNCs) have discontinued their operations in Malaysia due to lack of volume, affecting logistics demand in PTP. We understand that CJ outsources most of its general cargo handling workers and 100% of trucking services to third parties, partly to better manage its costs.

Reiterate SELL

We believe CJ’s operation will remain challenging given fierce competition within the logistics sector and longer gestation period for its courier services. We understand that its new warehouse in Setia Alam has commenced operation in October 2019. While the storage space is mostly taken up, the sorting capacity for its courier services is still under-utilised. Overall, we reiterate our SELL call with an unchanged DCF-based TP of RM0.35.

Source: Affin Hwang Research - 30 Dec 2019