Review

• CJ Century Logistics Holdings’ (CJ Century) 3Q24 results performance trailed expectations. Excluding forex gain and other exceptional items of total RM3.6mn, 9M24 core profit slipped to RM1.2mn loss versus our fullyear forecast of RM6.6mn and consensus estimates of RM6.9mn. The variance was largely due to lower-than-expected earnings contribution from the freight forwarding segment.

• 9M24 adjusted PBT declined 98.7% to RM0.2mn due to revenue and margin contractions. 9M24 revenue dipped 5.1% YoY led by the 13.1% drop in freight forwarding, which partially mitigated by 10% increase in the procurement logistics segment (PLS) (Figure 2). The decline in freight forwarding, which accounted for 23% of 9M24 revenue, can be attributed to lower freight volume due to shipment disruptions. Meanwhile, the increase in earnings from the PLS sector was due to rising export volume of air conditioners.

• On QoQ basis, revenue decreased by 12.4% due to decline in volume in the PLS segment which partially offset by recovery in freight forwarding. The decline in revenue resulted in lower operational efficiency, leading to RM3.7mn loss before tax in 3Q24 versus a profit of RM0.8mn in 2Q24.

Impact

• We slash FY24 earnings to RM1.9mn loss. Also, we cut FY25-26 earnings by 15.6-20.6% to RM10m and RM12mn respectively, after revising the cost of operations higher by 4-6%.

Outlook

• The world container freight rates (Figure 3) have corrected to USD3,440/40ft container recently from the peak of USD5,937 in July as global shipping liners have adapted to the Red Sea crisis. However, we believe there are still dangers ahead as Trump’s future tariff plans may cause a trade war and disrupt the global supply chain. The worst consequence would be a global economy slowdown, where Malaysia would take the brunt for being an export-oriented nation.

• Having said that, there is a glimpse of hope that Malaysia could be able to withstand the slowdown in trade if Chinese and European manufacturers expand to Malaysia in a big way under the China + One or Europe + One business strategies.

Valuation

• Following the earnings downgrade, we cut CJ Century’s fair value to RM0.21/share (from RM0.26 previously) based on unchanged 12x CY25 EPS. We maintain Sell and cease coverage on CJ Century given the challenging market outlook. Also, the interest in the stock is poor due to high liquidity risk.

Source: TA Research - 22 Nov 2024