Key takeaways from our recent meeting with the management team of CJ Century Logistics Holdings (CJ Century) are as follows:
- FY23 revenue growth outweighs cost pressure;
- China’s reopening ensures consistent supply; and
- ESG upgrade.
We lower our FY23-24 earnings projections marginally by -2% but raise the ESG score to 74 points. We maintain CJ Century’s fair value at RM0.88 and upgrade the company’s ESG rating to 4★. Maintain Buy
FY23 revenue growth outweighs cost pressure
CJ Century reported a sequential drop in core profit to RM1.8mn in 4Q22 from RM6.3mn in the preceding quarter. Management attributes this to decline in freight volume along with lower freight charges as well as additional accrual of staff costs. With regards to cost pressure, they believe the pressure would remain intense in FY23, no thanks to increase in ICPT surcharge and the elevated labour cost.
To mitigate the cost pressure, management has outlined several strategies to drive the revenue higher and reduce non-salary operating costs in FY23. This will include expansion of freight customer acquisition efforts by leveraging on the support from its parent company, CJ Logistics. Note that CJ Century has reorganised its freight team which is now managed as part of the CJ Logistics Global freight network. This, coupled with business expansion of existing MNC and Korean clients, would drive CJ Century’s freight volume higher by 10% to 15% in FY23. On the cost front, the installation of PV solar panels total 900+kwp at 2 distribution centres, accelerated deployment of digitalisation and development of technology-enabled logistics solutions are expected to reduce the non-salary operating costs by 3-5% in FY23.
China’s reopening ensures consistent supply
Besides that, we also expect the procurement logistics service segment to achieve another record revenue from E&E assembling and exports this year to cater for the robust global demand for E&E especially from RCEP participating countries. In addition, China’s reopening would bode well for the production process as component supplies from China would likely be stable and predictable this year. Note that the procurement logistics contributed revenue and EBIT of RM229.3mn and RM11.9mn respectively in FY22, which surpassed FY19’s revenue and EBIT of RM210.0mn and RM11.5mn.
Source: TA Research - 10 Mar 2023
