CJ Century Logistics Holdings’ (CJ Century) 1Q23 core profit amounted to RM3.3mn, which was below expectations at 10% of our and consensus’ full-year estimates. The variance was largely due to higher-than-expected operating cost and tax.
1Q23 core profit contracted by 62% YoY underpinned by lower revenue, which declined 9.6% to RM219.6mn. In specific, the drop in revenue can be attributed to lower freight volume and freight rates normalisation (Figure 3), which led to reduction in operational efficiency. As such, the adjusted PBT margin slid 3.0%-pts to 2.3% in 1Q23. The lower freight contribution was partially mitigated by recovery in procurement logistics segment (PLS), thanks to increased assembling volume and exports of E&E (Figure 4).
QoQ, revenue and core profit grew 7.4% and 87.4% with increased net margin to 1.5% versus 0.9% in 4Q22. The improvement in earnings was mainly due to absence of one-off staff bonus.
We cut our FY23/24/25 earnings projections by 46.5/7.8/7.5% revising the operating cost and tax higher.
FY23 earnings from the total logistics solution (TLS) segment, freight forwarding in particular, would likely be under pressure with the slowdown in South Korea’s trades. The impact would be amplified by normalisation of global freight rate. Note that South Korea’s exports have fallen for a seventh straight month in April, down 14.2% in Apr-22. This was the longest losing streak in three years. Meanwhile, the global container freight index has returned to the pre-pandemic level, hovering at US$1,437 now compared to about US$9,600 in Jan-2022.
The PLS segment is expected to remain robust as China’s reopening would ensure consistent supply of electrical and electronic components which is important to CJ Century’s E&E assembling in Malaysia. As such, our assumptions of 3% growth in both assembling unit and export unit are kept unchanged.
Rolling forward the valuation base year to FY24, the fair value of CJ Century is reduced to RM0.76 (from RM0.88) based on revised 12x CY24 earnings. We have reduced the target multiple for the logistics industry to 12x (from 16x previously) due to gloomy global trade outlook. Maintain Buy
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