CJ Century Logistics Holdings Bhd (“CJCEN”), a 55% Korean owned integrated logistics company is set to grow post disposal of its last mile delivery business. Serving more than 600 customers across various industries, CJCEN stands to benefit from prevailing elevated freight charges. We forecast CJCEN to register earnings of RM38.8m and RM52.5m in FY2022 and FY2023 respectively. BUY with target price of RM0.90 based on 10x PER (In line with peers’ average) over FY23 EPS with a potential upside of more than 68%.

To recap, CJCEN had disposed of its last mile delivery business for RM7.5m in 2021 after accumulated RM70m losses in 4 years of operations. Moving forward CJCEN will streamline its business in Total Logistic Solution (76.3% of total revenue in 1QFY22) and synergistic to this segment, CJCEN has additional revenue stream from Procurement Logistic (18.7% of total revenue in 1QFY22) which provide original equipment manufacturing and assembling services for air-conditioners, TV and etc for reputable brands. According to management, they are looking to add 2 more production lines and expand its clientele for this segment.

Being the top 3 warehouse operator in Malaysia, CJCEN owns 30 warehouses and distribution centres spanning 4.5m sq ft. As current warehouse capacity has been 95% occupied, CJCEN is planning to add another 1m sq ft by 2025. This is a good move as warehouse space is still lacking in Malaysia and rental has been on incremental trend. Moving into digitalisation and reduce reliance on labour, CJCE is planning to upgrade its warehouse with Automation Storage and Retrieval System (ASRS) which will drive margin improvement.

FY2021 revenue has grown tremendously from RM589.85m to RM843.02m, up 43% y-o-y attributed by higher freight charges. On the other hand, profit before tax (PBT) margin decrease from 4.6% in FY2020 to 3.4% in FY2021 due to higher cost of sales caused by inflated shipping cost. Nevertheless, we expect PBT margin to fare better in FY2022 resulted from better operating environment post economic reopening as well as exclusion of lost making last mile delivery business.

Despite having the lower margin, dividend yield and return on equity compared to its peers, we think CJCEN has more room to grow. With additional 1m sq ft warehouse capacity in the pipeline, it bodes well for CJCEN future growth.

Source: Rakuten Research - 10 Aug 2022