PETALING JAYA: CJ Century Logistics Holdings Bhd’s earnings for the second quarter 2022 (2Q22) are expected to accelerate off its low base, while the group continues to leverage on the sky-high freight rates and recovering freight volumes.
TA Research, in its preview on the logistic group’s upcoming results, said it expects CJ Century’s core profit to be within the range of RM6mil to RM10mil in 2Q22, which is two-to-three times more than the RM3mil in 2Q21.
The research house has maintained a “buy” call on the stock with a fair value of RM0.95 per share. It also made no changes to its FY22 to FY24 earnings projection on CJ Century.
TA Research noted that the Covid-19 lockdown in China, especially Shanghai from March to May this year, helped to ease shipping constraints as consumption and manufacturing activities slowed when the world’s factory was temporarily shut.
The Global Container Index also took a tumble and fell to the range of US$6,500 to US$9,400 (RM28,964 to RM41,886) levels in the second half of 2022.
“The index is expected to normalise further in 2H22 as an inflation threat and recession fears in the United States and European Union could likely take a toll on global economies,” added the research house.
According to CJ Century’s management, the decline in freight rates will have neutral implications to its earnings as “the expected drop in freight revenue will be offset by the decline in freight costs.”
As far as margins are concerned, the group is likely to depend on freight volume, which determines the scale of operational efficiencies.
“In our opinion, judging from Malaysia’s strong trade data and Westports’ stable gateway volume for 2Q22, we believe CJ Century will handle slightly more freight compared with the same period last year.
“This would yield positively on margins,” said TA Research.
Malaysia’s total trade has increased 32.7% year-on-year, while Westports registered a flat gateway volume growth for 2Q22.
Furthermore, the rising tensions from China’s military drills in the Taiwan Strait, following US House Speaker Nancy Pelosi’s visit to Taiwan, is expected to disrupt global supply chains and force vessels to reroute away from the zone.
“China has also cut bilateral trades with Taiwan and we expect this to cause some trade imbalances in this region,” added the research house.
TA Research opined that the global supply chain disruption would intensify if “the tensions escalate further and this would augur well for freight forwarders and warehouse operators such as CJ Century.”
In the past two years, CJ Century has benefited from wide adoption of the “just-in-case” inventory management approach.
This resulted in the company being able to provide reliable integrated logistics solutions in dealing with growing trade complications.