Century Logistics’ FY18 earnings declined 36% YoY to RM9.8m despite higher revenue growth of 36% YoY. This was mainly due to higher cost as a result of the expansion of the courier operation. The results were below our and consensus’ expectations, making up only 83% and 88% of full-year estimates respectively. The weaker-than-expected results were mainly due to the start-up cost for its courier segment. We adjust our earnings forecast for FY19-20F by an average of 29% to reflect higher expansion cost from its courier segment. Consequently, our TP is reduced to RM0.42 (previously RM0.53). Given a downside potential of 21%, we cut the stock from Neutral to Underperform. A final DPS of 0.25 sen was proposed for the quarter, resulting in a cumulative DPS of 0.75 sen for the year (FY17: 1.5 sen).

• 4QFY18 revenue (QoQ: -24.4%, YoY: +11.2%) The group’s 4QFY18 revenue rose 11% YoY to RM88m. This was led by higher sales contribution from Procurement Logistics services (+13.3%) owing to higher export sales. Meanwhile, its Courier services has just started the operation at the beginning of FY18. Nevertheless QoQ revenue declined 24% YoY due to lower activities in both Total Logistics services (-9%) and Procurement Logistics services (- 58%).

• 4QFY17 earnings (QoQ: -72.6%, YoY: -66.8%) The Group’s reported softer pre-tax margin of 1% during the quarter. All segments experienced margin compression due to lower activities. Full year FY18 Group’s pre-tax margin collapsed to 3.4%, compared to 7.2% in FY17. Excluding start-up loss of its courier segment of RM6.7m, earnings was flat YoY mainly cushioned by the Procurement Logistics segment which posted stronger EBIT margin of 7.2% to RM9.4m (FY17: 6.6%). This was due to pick-up from its export orders to Vietnam.

• Management expectations. The parcel delivery business is expected to remain a loss-making unit as it expands its operation in FY19F. It targeted to increase its fleet size to 400 trucks, from 250 as at the end of FY18. Meanwhile, the new multi-storey warehouse in Setia Alam is expected to be completed by July 2019 and this will increase its total sorting parcel capacity by another c.150k parcels/day going forward.

Source: PublicInvest Research - 28 Feb 2019