Slower manufacturing drags down logistics business

Business & Markets 2013
Written by MIDF Research
Monday, 20 May 2013 09:20
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CENTURY LOGISTICS HOLDINGS BHD []
(May 17, RM1.65)
Maintain neutral at RM1.67 with a revised target price (TP) of
RM1.82 (from RM1.70): First quarter of 2013 financial year (1QFY13)
earnings came in below our and consensus expectations at 19.3% and
18.3% of full-year estimates.
The shortfall was primarily attributable to reduced orders in
procurement logistics, as well as the oil and gas (O&G) transport
business operations at the Port of Tanjung Pelepas (PTP) in Johor.
Consequently, sales dropped by 16.4% year-on-year (y-o-y) to RM54.6
million during the quarter.
The slowdown was in line with the slower growth in Malaysia’s
manufacturing sector, which had tapered to +0.3% y-o-y in 1Q of 2013
calendar year.
Its 7,119dwt chemical tanker (On-Sys Century I) has ceased operations
following weak charter rates and high maintenance costs. The group is
now in the process of disposing of the vessel and we expect that it will
bring a one-off disposal gain.
In view of the cost advantage, many Singaporean companies are
attracted to the warehouse facilities adjacent to PTP. The group guided
that its warehouse centres located at PTP are currently fully rented out.
Another two distribution centres will be ready by 2Q this year and may
contribute about RM8 million to RM9 million additional rental income
annually.
Moving forward, we expect the warehouse business to help fill in the earnings void left by the downsizing of its O&G transport
segment.
We opine that the logistics business may recover in the second half of 2013 as overall manufacturing activities are set to pick
up again. Nonetheless, the recovery in manufacturing activities going forward may not be able to reclaim our earlier
expectation. Thus our downward-bias stance as far as our 2013 GDP growth estimate is concerned. Hence, we adjust
downwards our FY13 earnings forecasts by 5.5% and 6.6% for FY14.
We roll forward our valuation to FY14 earnings per share with a revised TP of RM1.82 (from RM1.70) and maintain our
“neutral” call on Century Logistics. Our valuation is pegged to its historical price-earnings ratio of eight times. — MIDF
Research, May 17