BRIEF BACKGROUND INFORMATION

Just a very brief write up from what I read and chat with a fund manager.  Fundamental is average, ROE 10%, PAT Margin 8-10%, PE 22x (less net cash of RM92m, PE is about 16x).  I learned about this company from Bonescythe's blog.  Last 5 years total earnings is RM125m, or average RM25m p.a.

Market Cap @ 6 April 2017 RM1.14 = RM445m.  Two weeks ago it is 92 sen.

South Korea largest logistics CJ Logistics took up 30% at RM1.45 per share last Oct 2016.  CJLogistics market cap is about RM15billion.

CATALYSTS

1.  CJ Logistics, is the largest B2C in Korea with 40% market share, and sharing their experience and expertise with Century.

2.  CJ Logistics and management wanted to start B2C biz in 2Q of 2017. (many other companies is also jumping into the wagon, GDex's MD said many will lose money)

3.  CJ Logistics will do cross sale from its TES clients in Korea.  New customers.

4.  CJ Logistics improving Century's operational productivity via their existing technology platform and expertise.

5.  Century is building a new warehouse, about 450,000 sf, adding about 20% or more to the exisiting capaciy + also buying trucks.

6.  CJ Logistics wants to make Century from a domestic into a REGIONAL logistic player.

7.  New Customers, New Business, New Capacity, New Expertise.  Century makes its immediate direction very clearly. More importantly, they have the capital resources (net cash of RM92m) and also "human" resources to execute it.  First year may be rough, as of any new biz.

8.  Even GDex's MD interview on The Edge Financial Daily on Monday 3, April is not  very clear on how are they to double their profits, although they have an injection of RM200m from PP.

CENTURY LOGISTICS  (B2B + going into B2C)          VS           GDEX (B2C)

1.  Past 5 years total earnings  RM125m       vs    RM106m.

2.  Market Capital at RM445m  (gross cash RM92m)      vs   RM3,000m  (net cash RM287m)

3.  Average last 5 years earnings  RM25m  vs RM21.2m  ROE is 10% vs 20%.

4.  PE using average earnings (last 5 years)  =  22x vs 79x or net of cash 14x vs 128x.

5.  Going forward, I believe CJ Logistics can double their average earnings from RM25m to RM50m in 5 years time based on the catalysts stated above.  So, we need to monitor their progress and execution.

6.  DY based on RM1.00 per hsare in Century is about 3.5%.

7.  Some instituitional funds are gradually particiapating.

HOW MUCH DO YOU VALUE CENTURY?

1.  I will used a PE of 15x - 20x due to the e-commerce platform CAGR of 11% and CAGR of Century 15% (aspiration of growth in B2B, B2C, to expand regionally with CJ Logistics as a 30% shareholder, improved its profile significantly with CJ Logistics).  For this, a premium ("brand name") is reasonable.  

At the moment, it is doing at PE of 16x (net of cash), is very reasonable as compared with GDex of PE 72 x (net of cash).  I believe, Century, even traded at half of GDex PE, it would be a PE of 36x (closer to POS).  Upside is great, especially with capacity growth & entering B2C biz.

CJ Logistics also sent a few of their lieutenants in Century (Annual Report 2016) in the Board and Senior Management.  Let us see if the Korean can gave the locals a run for their money.

2.  For easy calculation, RM50m x PE20 = RM1.0 billion (in 3-5 years time).

3.  GDex is now RM3 billion at PE of 79x or 72x (net of cash).  If you believe they can do a CAGR of earnings of about 70% in next 3 years, then their valuation is not extreme.

4.  Hope Century price will drop back lower, so more people can accumulate and enjoy the return 3-5 years from now.

DISCLAIMER

Not a buy, sell or hold call.  I did enjoy Beauty and the Beast.  In today's market, participants seems to have problems differenciating which is the Beauty and which is the Beast.  Please do your more research. Try to look for the beauty in the Beast.

PS:  While the story is nice to listen, please, monitor their capital allocations & other actions and do not expect magic immediately.  Even some good F&B takes 6 months to breakeven.

POST SCRIPT (12 APRIL 2017)

1.  Century Logistics (CL) is RM450m & Gdex is RM3.2b.

2.  CL wanted to be similar size of Gdex (revenue of RM240m) by 2020 (with help from CJKE, largest parcel delivery in Korea).  To be conservative, let just said they achieve 70% of Gdex size today, their market cap for B2C will be RM2.24b.

3.  CL total biz will be about RM400m + RM2.24b = RM2.84b over 391m shares.  CL will be approximately RM7.26 per share.

4.  Taking worst case scenerio, CL can only achieve 50%, CL will be RM400 + RM1.6b = RM2.0b or RM5.11 per share.

5.  Using Murphy's law principle, let just said CL can only attain 25% of target, i.e. RM3.2b x 25% = RM800m.  Total market cap will be RM400m + RM800m = RM1.2b or RM3.06.  All CL need to achieve is a quarter of GDex revenue of RM240m, i.e. RM60m by 2020.  This will be very easy, as CJKE (Malaysia) existing turnover is RM275m (bigger than GDex).

6.  So will it be RM3.06, RM5.11 or RM7.26 per share by 2020?

7.  If we read carefully, CJKE aspire to grow from USD5.3b to USD25.0b by 2020.  They have purchased China logistics in 2015, and also Myanmar + Indonesia + Malaysia (Oct 2016).  They need to expand USD20b and half of it is outside Korea.

That means, the balance USD10b is outside of Korea,

i) China    (assume 90%)

ii) Asean region - Indonesia, Thailand,Singapore, Malaysia and Vietnam. (10%)

So, for Asean region, revenue required is USD1b or RM4.4b.  Out of the ASEAN region, Malaysia share is about 14%, i.e. RM616m.  CL aspire to attain only RM240m by 2020.  Even we achieve a quarter or half, it is not a big issue.  The fact, existing CJKE Malaysia already doing RM275m of revenue.

8.  To know more about Century, please read this comprehensive report from Public Bank https://cdn1.i3investor.com/my/files/dfgs88n/2017/04/07/1505900072--1649735210.pdf

9.  Please pick up all the positives & negatives from Public Bank's report and ask the management (AGM 21April 2017) how to achieve "B2C like GDex size today", and how much capital is required & what 3 top actions "taken" to achieve it.  Look for actions or activities that the management has taken, not wishing this or that (because, anyone can wish for this or that).

14.4.17

Price dropped to RM1.11 per share (most stocks in Bursa dropoed) as a result of DJIA dropped.  At this price, a good price to accumulate.