Review

• CJ Century Logistics Holdings’ (CJ Century) 1H23 core profit of RM6.9mn accounted for 40% of our full-year projections and 31.5% of consensus forecast. We consider this as within our expectation as 2H23 earnings are expected to be higher due to upsurge in demand for air conditioners and gradual recovery in container freight rate.

• 1H23 core profit contracted by 58% YoY to RM6.9mn due to lacklustre performance at the total logistics solution segment (TLS) (Figure 1) that offset increased contribution from the procurement logistics service (PLS) segment (Figure 2). In specific, the TLS segment suffered a 29% decline in revenue due to lower freight volume and freight rates normalisation. This has negatively affected the operating efficiency leading to margin erosion (- 4%pts). On the flip side, the PLS segment recorded 38% rise in revenue mainly driven by exports of E&E.

• QoQ, 2Q23 core profit grew 10% to RM3.6mn despite lower revenue of RM211mn (-4%). We attribute the earnings recovery to reduction in freight costs, leading to lower direct expenses.

Impact

• No change to our FY23/24/25 earnings projections.

Outlook

• The TLS segment is expected to face challenges in the gloomy global trade outlook, especially with the slowdown in South Korea’s trades. The impact would be amplified by normalisation of global freight rate. According to Bank Negara statistics, the total trades between Malaysia and South Korea contracted 7% YoY in 2Q23 to RM27.2bn (Figure 3). Meanwhile, the global freight rate (global freight index) for a 40’ container hovered around US$1,533 in August after it went through a low of US1,270 in July (Figure 4). It has fully normalised now compared to sky-high price of US$9,600 in Jan-2022.

• The PLS segment is expected to remain robust underpinned by resurgent demand for air conditioner worldwide due to the heat wave. Besides that, the full China’s reopening would ensure consistent supply of electrical and electronic components which is important to CJ Century’s E&E assembling in Malaysia. As such, we keep our assumptions of 3% growth in both assembling unit and export unit in FY23.

Valuation

• We maintain CJ Century’s fair value at RM0.76/share based on unchanged 12x CY24 earnings. Maintain Buy

Source: TA Research - 18 Aug 2023