Background

Century Logistics Holdings Berhad (CENTURY) is a leading provider of supply chain solutions in Malaysia, specialising in integrated logistics, oil logistics and procurement logistics services.

In September 2016, CENTURY saw a major change in shareholdings when CJ Korea Express emerged as its largest shareholder with 31.44% stake through a share purchase from CENTURY’s founder Datuk Phua Sin Mo and his family, for a consideration of RM1.45/share. The transaction was concluded on 31 October 2016.

Key takeaways

Ongoing synergistic with CJ Korea is expected to be positive, with CENTURY able to leverage on its larger global network and industry expertise for improved cost efficiencies.

Leveraging on CJ Korea’s expertise, CENTURY is also looking to venture into the last-mile parcel delivery business within the next one year. CJ Korea is one of the largest parcel delivery players in South Korea, commanding an estimated 40% market share. CENTURY has earmarked a capex of RM45m to purchase up to 500 units of delivery trucks over the next two years.

As for its existing logistics business, CENTURY’s expansion plan includes an upcoming new multi-storey warehouse situated in the Eastern Gateway Industrial Hub, with a total warehousing area of 450k sq ft. Expected capex for the construction costs is RM95m, with expected commencement set at mid-2018. Other future capex include RM5m for warehousing equipment, and another RM5m for IT-related expenses.

Outlook

CENTURY’s venture into last-mile is no doubt an effort by the company to tap into the growing e-commerce in the region. While the local parcel delivery space is fairly competitive and disruptive, we feel slightly comforted given CJ Korea’s backing coupled with its leading expertise within the industry. Seeing that CENTURY opted to enter the business as a start-up venture, rather than going the inorganic route, we expect a gestation period of 2-3 years for the company to capture market share before the business is expected to show any meaningful profits.

Meanwhile for its existing logistics business, we expect growth to mainly come from its total logistics segment, while its oil and procurement logistics are expected to remain resilient. The upcoming multi-storey warehouse is a positive factor, increasing the company’s total warehousing space by a further 20% to 2.7m sq ft, from 2.2m sq ft currently, within the next two years.

Risk

• Overall slowdown in domestic economy.
• Failure to capture market share for its upcoming last mile venture.

Conclusion

We believe CENTURY’s existing logistics business is in a stronger financial position compared to some of its peers, having operated in a netcash position for the past three years. Its venture into last-mile delivery may also interest investors looking for an e-commerce play within the logistics space. Investors may also be able to find some comfort from CJ Korea’s entry price of RM1.45/share.

At its last closing price of RM1.14, CENTURY is currently trading at FY16 PER of 20.8x, compared to its 5-year historical average PER of 15.5x. Following a recent industry-wide logistics share price rally, CENTURY has gained 30% YTD, close to industry average YTD gain of +29%, led by top performers NATWIDE (+48%), TASCO (+45%), GDEX (+34%), and POS (+30%).

Source: Kenanga Research - 19 Apr 2017