Review

• CJ Century Logistics Holdings’ (CJ Century) 1H22 core profit of RM16.5mn was within expectation at 55.2% of our full-year forecast. For this quarter, the company declared a first interim dividend of 0.5sen/share.

• Excluding the discontinued courier operations, 1H22 core profit surged 59.0% YoY to RM16.5mn, underpinned by revenue growth of 9.9% YoY to RM495.7mn. The decent performance can be attributed to significant rise in revenue from the total logistics services segment (TLS) to RM380.4mn (+14.6% YoY), which boosted 1H22 EBIT by 74.6% to RM22.9mn. This was more than offset the decline in EBIT contribution from the procurement logistics services segment, which contracted by 7.2%. The group’s 1H22 EBIT margin expanded by 2.0%-pts to 6.0% due to higher operational efficiency.

• QoQ, 2Q22 adjusted PBT declined by 15.5% and 22.3% despite higher revenue of 4.2%. This was due to unfavourable revenue mix where certain contracts incurred higher operating costs in 2Q22.

Impact

• No change to our FY22-24 earnings projections.

Outlook

• The normalisation of container freight rate is expected to have insignificant impact on CJ Century’s earnings as the freight cost would decline in tandem with the revenue. As far as volume is concerned, we expect the company to handle slightly more freights on the back of resilient trade activities in Malaysia, which would yield positively on group’s margins.

• Meanwhile, the overwhelming demand for warehousing space will continue to bode well for the group, which operates 30 warehouses and distribution centres in Peninsula Malaysia with a total storage capacity of circa 4.5mn sf. We expect rental rates to increase by 10% this year.

Valuation

• We maintain CJ Century’s fair value at RM0.95/share, based on unchanged 16x CY23 EPS. CJ Century is still our favourite pick under the high freight rate environment and a perfect hedge against global trade disruptions. Maintain Buy

Source: TA Research - 26 Aug 2022