CJ Century Logistics Berhad achieved a core PATAMI of RM1.8m in 1QFY24 which was below expectations says MIDF in its earnings report of the company, the house said it only accounts for 8% of its projected and consensus full-year forecast, significantly lower than expected.
While revenue aligned with expectations, the shortfall can be attributed to reduced margins from both of its divisions. Revenue from the total logistics services (TLS) division decreased by -15.5%yoy due to decreased business volume from two
major customers. The profit margin of this division likely suffered mainly due to inefficiencies stemming from diseconomies of scale. Meanwhile, the procurement logistics services (PLS) division saw a notable revenue increase of +21.7%yoy, driven by higher export volumes. However, the margin was affected by elevated operating costs due to the installation expenses associated with a new production line. The core PATAMI was reduced by more than half compared to 1QFY23. Sequentially, core PATAMI nearly tripled due to increased revenues from both divisions, leading to a slight improvement in margin.
Outlook. The weakness observed in the freight forwarding segment is likely attributable to its South Korean-based customers, who contribute 30% to 35% of the revenue. The house said it postulates that one such customer could be CJ Bio, possibly affected by direct competition from suppliers in China.
The continued decline in this segment could have a ripple effect on the demand for its other logistics services. However, the PLS division is set to remain resilient, fueled by anticipated export growth of electrical & electronic (E&E) products to Vietnam and Indonesia, which are key markets for CJ Century. This is supported by the strong economic performance of both countries, which recorded mid to high single-digit growth rates in 1QCY24.
Downgrade to NEUTRAL. MIDF said it has adjusted the FY24F/FY25F earnings downward by -43%/41% to account for lower margins. Following the revision and updating valuation base year, target price has decreased to RM0.30 from RM0.45 (based on 12x FY25F). MIDF is downgrading its recommendation from BUY to NEUTRAL, as the stock is currently trading in line with its 5-year historical mean. A key catalyst for earnings would be a faster recovery of its shipment volume.
