Review
- Stripping off exceptional items, CJ Century Logistics Holdings’ (CJ Century) FY22 core profit amounted to RM24.5mn, which was below our expectations and consensus forecast. The variance was largely due to higher-than-expected operating cost. For this quarter, the company proposed a final dividend of 1sen/share, bringing FY22 total dividend to 1.5sen/share.
- Excluding discontinued courier operations, FY22 core profit jumped 29.5% to RM24.5mn on higher revenue at RM930.4mn (+10.4% YoY). The decent performance can be attributed to significant rise in revenue from the total logistics services segment (TLS) and procurement logistics services (PLS), which rose 4.7% and 32.3% YoY respectively.
- In terms of quarterly performance, 4Q22 EBIT declined 33.9% QoQ (- 49.8% YoY) to RM6.7mn on the back of lower contribution from the TLS segment, in particular the freight forwarding segment. The decline in TLS contribution was partially offset by the PLS segment where 4Q22 revenue and EBIT surged 2.6% and 9.2% respectively to RM57.7mn and RM3.3mn. Impact
- We trim our FY23-24 earnings projections by circa 5-7% after revising the operating cost higher by 5% due to increasing administration expenses.
Outlook
- China’s reopening is expected to mitigate recession risks in EU and US, thereby providing some buffer to decline in freight volume, in our opinion. We still expect CJ Century to handle higher freight volume on the back of robust Malaysian’s exports and imports, which are expected to grow 2.5% and 3.0% respectively this year.
- Also, China’s reopening will bode well for the PLS segment too as stable supply of electrical and electronic components from China is critical to CJ Century’s E&E assembling in Malaysia. As such, we maintain our assumptions of 3% growth in both assembling unit and export unit.
Valuation
- Given the change in earnings, we cut CJ Century’s fair value to RM0.88/share (from RM0.95 previously), based on unchanged 16x CY23 EPS. We believe the resumption of dividend payment in FY22 is a good start to regain investor’s confidence and look forward to China’s reopening to support earnings growth and dividend payments in FY23. Maintain Buy
Source: TA Research - 27 Feb 2023
