Century Logistics's (CLH) full-year FY11 core earnings camein below our and consensus forecasts by 5% and 8% respectively. Core earningsdropped 2% y-o-y and 29%  q-o-q owing tothe slowdown  in its  O&G logistics business.  It has declared a single-tier final DPS of7.0 sen this quarter, bringing the total FY11 DPS to 12.0 sen, which translatesinto a FY11 dividend yield of 6.5%. We are trimming our top and bottom lineforecasts by 7% and 1% respectively for FY12 as well as forecasting a softertop and bottom line y-o-y growth of 3% and 1.6% respectively for FY13. Hence,we downgrade our FV from RM2.10 to RM1.94 based on 6x FY12 EPS. In view of thelimited upside after seeing its share price surge 12% over the past 3 months,we downgrade the stock from BUY to NEUTRAL.

Impacted by itsO&G logistics business. CLH's FY11 revenue and earnings of RM281m andRM30m were below our and consensus estimates by 5% and 8% respectively. Thegroup's revenue and earnings dipped 4% and 29% to RM61m and RM7m respectively.The poor results recorded over the quarter were due to disruptions to one ofits key business segments ' O&G logistics services that cover the transferand storage of oil products for international oil traders.  As instructed by the Ministry of the Transport'sMarine Department, CLH has to suspend its four out of eight floating and storage units (FSUs) located in PasirGudang from Sept-Nov 2011 due to the development of the RM5bn deepwaterterminal by Dialog Group (BUY, FVRM3.07) in Pengerang, Johor. As  aresult, the group's  4Q  earnings slipped significantly. Nonetheless,management guided that two of its FSUs have resumed operations in new locations,and it is also currently finalizing the strategic areas for its remaining 2FSUs. However, we remain neutral on its O&G business at this juncture, aswe  anticipate a challenging environmentfor its bunker fuel services going forward owing to the slowing global economy.

Plans going forward.Its core business, contract logistics continued to perform well with a healthyexpansion of its clientele base. Management has allocated a capex amount of someRM50-RM60m to develop a distribution centre, including  a fourth warehouse in Pelepas Free Zone, inthe next 2 years. Besides, we do not rule out the  possibility of M&A activities goingforward as management is consistently looking for good acquisitiontargets thatare attractively priced and located outside the country. We believe M&As allowCLH to gain a stronger regional foothold  in view of  the fragmented  industry structure.


Valuations & Recommendations
Downgrade to NEUTRAL. Following the lower earnings arising from disruptions to its key O&G logistics
segment, we slash our top and bottom line estimates for FY12 by 7% and 1% respectively. We expect its
bunker fuel services to encounter strong headwinds going forward given the current weak global sentiment.
We anticipate CLH's 1QFY12  results to be lacklustre  as 1Q is always the weakest quarter for the group
owing to  the festive  season  which results in fewer working days.  Hence, we downgrade our FV from
RM2.10 to RM1.94 based on 6x FY12 EPS. In view of the limited upside after seeing its share price surge
12% over the past 3 months, we downgrade the stock from BUY to NEUTRAL.

Source: OSK188