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CJ Century Logistics Holdings (CJ Century) will release its 3Q24 results this month. We expect the quarterly profit to come in the range between RM2.0mn to RM2.5m, bringing the cumulative 9M24 core profit to RM4.2-4.5mn or 64- 71% of our full-year forecast. In specific, we expect both core divisions, i.e., total logistics services and procurement logistics services, to rake in higher profit than the preceding quarter, which affected by shipping disruptions and port congestions.

Recall, CJ Century suffered 62% and 68% declines in PBT and core profit respectively for 1H24, resulted from lower contributions from oil logistics (- 48.5% YoY) and freight forwarding (-24% YoY) segments. We attribute the decline in freight forwarding to the Red Sea crisis. However, the decline was offset by higher EBIT contribution from the procurement logistics services, which surged 8.4% YoY.

Correction in Freight Rates

Figure 1 below shows a correction in the global container freight rates from USD5,937 on July 18 to USD3,440 on Nov 14. The normalisation in the freight rates implies that global shipping liners have adapted to taking longer routes to bypass Red Sea. Interestingly, however, we observe an uptick in rates (circle), which coincided with Trump’s landslide victory in the US election. This could be an early sign that the container freight rates would reverse course due to looming tariff risks in 2025.

Trump Tariff 2.0

In our opinion, the return of President Trump to the White House is expected to shake up the world economy as he voiced his plans to increase tariffs drastically on foreign goods entering the US. He plans to install a blanket tariff of 10% to 20% on all imports, with additional tariffs of 60% to 100% on goods brought in from China.

Our channel checks revealed that stock up has already begun before the election took place. However, it is expected to intensify before the implementations of new tariffs next year. As such, it is important to monitor if blank sailing would rampant and causes shipping disruptions and lack of containers in this region. Looking forward to 2025, the intensity of trade war between US and China would certainly be one of the factors affecting the global trade and world economy.

Impact

No Change to Our FY24-26 Earnings Projections.

Valuation

The looming risk of trade disruption has prompted a downgrade in our sector PER to 12x from 14x previously. As such, we now fairly value CJ Century at RM0.26 (from RM0.31/share Previously) based on revised 12x CY25 EPS. Maintain Sell

Source: TA Research - 18 Nov 2024