May 16, 2011

CENTURY - Century Logistics' top up, bottom down

Stock Name: CENTURY
Company Name: CENTURY LOGISTICS HOLDINGS BHD
Research House: OSK

Century Logistics Holdings Bhd
(May 13, RM1.96)
Maintain buy at RM1.99 with target price of RM2.43
: Century Logistics (CLH) posted earnings of RM6.4 million (year-on-year [y-o-y]: - 2.5%, quarter-on-quarter [q-o-q]: -23.4%) on the back of RM66.8 million in revenue. Revenue accounted for 19% of our full-year estimates, given the seasonally weaker quarter due to the low number of working days.

We consider these commendable results, noting that the remaining three quarters will be strong on new contracts.

CLH has just started another two major logistics contracts last month, which according to management have contributed substantial revenue to the group for this segment.

CLH's oil and gas logistics segment also continues to see buoyant growth and demand for its bunkering services remains solid and resilient despite the hike in oil prices.

CLH's bottom line was down by 23.4% q-o-q and 2.5% y-o-y falling short of our and consensus views by 20% and 16% if annualised. Earnings before interest and tax (Ebit) margin was down by 2.5 percentage points q-o-q.

We consider this in line due to the seasonally lower 1Q net profit owing to lower number of working days.

Furthermore, the much lower bottom line is also due to the higher tax charges for the quarter given that its Incentive Tax Allowance tenure has ended. Note that CLH's tax rate for the previous quarter was much lower owing to the non-taxable gain from the group's sale of property.

We continue to like CLH and expect numbers to remain strong going forward. Apart from its strong and steady growth in its oil logistics, we expect its contract logistics business to grow credibly and to secure more contracts from multinational companies such as F&B players and some large electrical and electronic companies. We are optimistic that CLH will continue to do well. Management has also guided that this segment will remain one of the company's key growth areas in the future.

We maintain our earnings forecast for now and reiterate our 'buy' call on CLH with fair value at RM2.43 based on 5.1 times FY11 earnings per share. CLH has also guided that it will declare a dividend payout ratio of 20% to 25% for the full-year. ' OSK Research, May 13


This article appeared in The Edge Financial Daily, May 16, 2011.

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