CJ Century Logistics Holdings Bhd
(May 6, 42 sen)
Maintain hold with a lower target price (TP) of 46 sen: CJ Century Logistics Holdings Bhd’s revenue is likely to grow 22% year-on-year (y-o-y) in 2019 estimate on its new multistorey warehouse’s commencement in Setia Alam and an expanded clientele base for its procurement logistic services (PLS) segment. However, we forecast earnings for 2019 to grow at a slower rate on a lower PLS margin and widening courier service losses.

 
Overall, we expect a core net profit two-year compound annual growth rate (CAGR) of 29% in gross earnings for 2020 and 2021E, partly due to a low base effect in earnings for 2019E and the courier service segment turning profitable in 2021E. We maintained our “hold” rating with a lower TP of 46 sen.

We forecast CJ Century’s revenue to grow 5% to 22% per annum in 2019 to 2021, partly due to its multistorey warehouse opening in Setia Alam in July 2019. Currently, the 450,000 sq ft warehouse has a take-up rate of 50% to 60%, with most of the space taken up by CJ Wow Shop. We believe the group will be able to fill the warehouse’s capacity given its proximity to a port and a highway. We also expect PLS’ revenue to improve about 50% as the group had secured new customers, mainly from Vietnam.

We forecast 2019 core net profit to grow 5% y-o-y to RM8 million. Despite a strong revenue growth of 22% y-o-y in earnings for 2019E, we expect the group’s performance to be hampered by a higher courier service operating loss of RM12.2 million, versus RM6.7 million in 2018, due to low economies of scale.

We expect the courier service segment to continue incurring losses before it achieves a break-even in the fourth quarter of 2020.

We also expect a lower PLS operating profit margin of 5% to 6%, versus 7% in 2018, on higher export volumes, typically commanding a lower margin. Overall, we expect a CAGR of 29% over earnings for 2019 to 2021E mainly due to a low base effect and the courier service segment’s expected turnaround in 2021E.

We cut our 2019 to 2021E core earnings per share by 34% to 38%, mainly on higher courier service losses and a lower operating margin as a result of a competitive operating environment. We maintained our “hold” call with a lower discounted cash flow-based TP of 46 sen from 53 sen, as we rolled forward our valuation to 2020E. We believe the stock’s medium- to long-term prospects are still positive given the e-commerce industry’s rapid growth. — Affin Hwang Capital, May 6