PublicInvest Research starts coverage of Century Logistics with Outperform call

Century Logistics executive director Edwin Yeap:

KUALA LUMPUR: PublicInvest Research has started coverage of Century Logistics Holdings Bhd with an Outperform call with a target price of RM1.43. 

It said on Friday its target price was based on pegging FY18F EPS to a target price-to-earnings of 19 times. 

“The company could potentially enjoy premium valuations like other parcel delivery players like Pos Malaysia and GDex (both trading at forward price-to-earnings ratio of 38 times to 76 times) if they manage to successfully kick start the parcel delivery business. 

“We are suggesting Century Logistics for its i) recovery in logistics activities, ii) venture into the e-commerce space, iii) change in corporate structure under the new leadership and iv) solid balance with a net cash of RM22.2mil,” it said.

PublicInvest Research said the logistics sector has been in the spotlight lately thanks to the launch of first digital free-trade zone in Malaysia. 

It believes Century Logistics, which had been quiet over the years, can ride on the e-commerce boom in Malaysia under the new leadership of e-commerce giant player, CJ Korea Express, which had emerged as the largest shareholder in the company eight months ago. 

As such, it has initiated coverage on Century Logistics with an Outperform call and TP of RM1.43 banking on i) recovery of logistics activities, ii) venturing into the e-commerce space, iii) change of corporate structure under the new leadership and iv) solid balance sheet.

Recall that Century Logistics, founded in 1970, is an integrated logistics player providing services from international freight forwarding, transportation management & distribution, contract logistics, oil logistics, halal logistics services and data management services to procurement logistics. 

The company saw a change of shareholders in September 2016 with the emergence of CJ Korea Express as the largest shareholder after acquiring a 31.4% stake from the founders at RM1.45/share.

PublicInvest Research said the local parcel industry has been riding on the momentum of the booming e-commerce industry in Malaysia. 

With the help of Alibaba's Jack Ma, recently appointed as Malaysia's Digital Economy Advisor, the Malaysian government hopes to register a CAGR of 23.2% for 2017-2021 or double the e-commerce growth from 10.8% to 20.8% by 2020 under the National E-Commerce Strategic Roadmap. 

A number of innovative policies have been pushed by the government to make this happen, including the world's first “digital free trade zone”, which was officially launched a few weeks ago.

The research house estimated earnings growth of 10%-25% per annum for the next four years.

Under the new leadership, the company has targeted more aggressive growth going forward, driven by i) a new warehouse in Klang with an additional 20% capacity (from 2.3 million sq ft to 2.75 milion sq ft), ii) venturing into e-commerce business, iii) a pick-up in regional trade activities, iv) expansion of client base and v) investment tax allowance for five years under the new warehouse expansion.