Review

• CJ Century Logistics Holdings’ (CJ Century) FY23 core profit of RM8.3mn after stripping out forex, writebacks and other exceptional items, came in below expectations at 68% of our full-year forecast and 64% of consensus estimates. The variance was largely due to lower-than-expected contribution from the freight forwarding segment.

• FY23 core profit contracted by 66% YoY on the back of lower revenue, down 21% YoY, and margin compression. This dismal performance can be attributed to poor operational efficiency amid decline in freight volumes alongside unfavourable freight rates. For this period, revenue from the total logistics solution segment (TLS) (Figure 1) contracted by 28% YoY owing to lower freight forwarding contribution, down 48%. This more than offset increased contribution from the procurement logistics service (PLS) segment (Figure 2), which surged 1.4% YoY, driven by resurgent exports of air-conditioners.

• QoQ, 4Q23 performance was sluggish with core profit slipped to a loss of RM1mn. This can be attributed to lower freight volume and depressed freight rate.

Impact

• No change to FY24-25 earnings projections.

Outlook

• Ocean freight rates have stablised after a month-long rally (Figure 3) amid Houthi Red Sea attacks. The rise in freight rates is expected to bode well for freight forwarders and we expect the impact to be felt in CJ Century’s 1H24 results performance.

• Looking forward, we continue to believe the global supply chain would be highly uncertain this year amid geopolitical tension, US-China trade war and US presidential election. As such, we expect a resurgent demand for thirdparty logistics management to mitigate the risk of supply disruption. As far as the hike in service tax is concerned, we believe the impact to CJ Century is minimal as the additional tax will be borne by customers.

Valuation

• We maintain CJ Century’s fair value at RM0.50/share based on 14x CY24 PE multiple. Maintain Buy

Source: TA Research - 26 Feb 2024