KEY INVESTMENT HIGHLIGHTS

• CJ Century fell into losses in 3QFY24
• Loss in contribution from oil logistics operations
• Freight forwarding volumes appear to be improving
• Last call was SELL with TP of RM0.25
• Terminating coverage on CJ Century

Below expectations. CJ Century Logistics Berhad (CJ Century) reported a core LATAMI of -RM0.4m for 3QFY24, bringing the total for 9MFY24 to RM2.2m. This constitutes only 31% of our full-year forecasts, largely due to lower-than-expected contributions from the freight forwarding and contract logistics segments.

Quarterly. Revenue from the total logistics division decreased by - 4.4%yoy in 3QFY24, primarily due to reduced contributions from the transportation segment and the discontinuation of its oil logistics segment. We believe the Group's losses of -RM0.4m (-115.4%yoy) resulted from diseconomies of scale. Sequentially, the primary contributor to the decline in overall revenue by -12.4%qoq was the procurement logistics division, which experienced a -40.7%qoq drop, likely due to reduced export activities of home & electrical appliances.

Compared to 2QFY24, the core losses of -RM0.4m represented a decline of -142.6% qoq.

Outlook. Much of the decline in earnings was attributed to the cessation of operations in its oil logistics business in 2QFY24. This high-margin segment involved two floating storage units near the Port of Tanjung Pelepas (PTP) in Johor. However, freight forwarding volume appears to have improved, with this segment recording a double-digit increase in revenue. Previously, it faced challenges due to a notable customer, CJ Bio, which was a major factor in the decline as it encountered heightened competition from Chinese suppliers. Nonetheless, we are cautious given that South Korea-based Hanwha Q CELLS, a major customer of CJ Century, may face volume reductions due to the newly imposed countervailing duties by the U.S. on certain photovoltaic cell manufacturers in Malaysia.

Termination of coverage. We are ceasing our coverage on CJ Century as we reallocate our resources. Our last call on the stock was SELL with a target price of RM0.25.

Source: MIDF Research - 22 Nov 2024