Maintain HOLD

2Q18 results were within expectations. In the near to medium term, start-up costs at its courier operations will continue to feature as it builds scale. Of note that CLH has a target of 100 branches and 500 trucks by 2020; versus 17 branches and 152 trucks currently. Its procurement logistics arm should however provide some earnings buffer on better export sales. No changes in our earnings forecasts. Maintain HOLD with an unchanged DCF-TP (WACC: 9.4%, LT growth: 2.0%).

Within expectations

CLH’s 2Q18 core net profit of MYR2.8m (-8% YoY, +4% QoQ) took 1H18 core net profit to MYR5.5m (-31% YoY). The latter represents 43%/40% of our and consensus full-year estimates, in line. Of note that in the past, 1HCY usually accounts for 44-45% of full-year earnings.

Better contribution by its procurement logistics arm

2Q18 total logistics EBIT fell 15% YoY largely due to lower utilisation of its warehouse capacity at Port of Tanjung Pelepas (PTP, Johor) and overall higher OPEX (eg. staff costs). Meanwhile, its courier service arm recorded a loss of MYR1.6m (LBIT) due to start-up costs. Providing a buffer, however, was its procurement logistics arm where 2Q18 EBIT grew to MYR2.7m (MYR1.0m in 2Q17) on the back of higher revenue; on the pickup in exports contribution (i.e. in Vietnam).

New warehouse construction on target

We understand that CLH has seen increased competition on entry of other players in the warehousing space at PTP since early-mid 2017. On utilisation, it currently stands at est. 71% (total of 890k sqft at PTP) and this marks an improvement since end-2017 at est. 65%. Elsewhere, we gathered that the construction its 3-storey warehouse in Klang is 45% (est.) completed and should be ready by early-2019.

Source: Maybank Research - 27 Aug 2018