CENTURY (FV RM1.94- NEUTRAL) FY11 Results Review: Let Down by O&G Logistics

Century Logistics’s (CLH) full-year FY11 core earnings came in below our and consensus forecasts by 5% and 8% respectively. Core earnings dropped 2% y-o-y and 29%  q-o-q owing to the slowdown  in its  O&G logistics business.  It has declared a single-tier final DPS of 7.0 sen this quarter, bringing the total FY11 DPS to 12.0 sen, which translates into a FY11 dividend yield of 6.5%. We are trimming our top and bottom line forecasts by 7% and 1% respectively for FY12 as well as forecasting a softer top and bottom line y-o-y growth of 3% and 1.6% respectively for FY13. Hence, we downgrade our FV from RM2.10 to RM1.94 based on 6x FY12 EPS. In view of the limited upside after seeing its share price surge 12% over the past 3 months, we downgrade the stock from BUY to NEUTRAL.

Impacted by its O&G logistics business. CLH’s FY11 revenue and earnings of RM281m and RM30m were below our and consensus estimates by 5% and 8% respectively. The group’s revenue and earnings dipped 4% and 29% to RM61m and RM7m respectively. The poor results recorded over the quarter were due to disruptions to one of its key business segments – O&G logistics services that cover the transfer and storage of oil products for international oil traders.  As instructed by the Ministry of the Transport’s Marine Department, CLH has to suspend  its four out of eight floating and storage units (FSUs) located in Pasir Gudang from Sept-Nov 2011 due to the development of the RM5bn deepwater terminal by Dialog Group (BUY, FV RM3.07) in Pengerang, Johor. As  a result, the group’s  4Q  earnings slipped significantly. Nonetheless, management guided that two of its FSUs have resumed operations in new locations, and it is also currently finalizing the strategic areas for its remaining 2 FSUs. However, we remain neutral on its O&G business at this juncture, as we  anticipate a challenging environment for its bunker fuel services going forward owing to the slowing global economy.

Plans going forward. Its core business, contract logistics continued to perform well with a healthy expansion of its clientele base. Management has allocated a capex amount of some RM50-RM60m to develop a distribution centre, including  a fourth warehouse in Pelepas Free Zone, in the next 2 years. Besides, we do not rule out the  possibility of M&A activities going forward as management is consistently looking for good acquisitiontargets that are attractively priced and located outside the country. We believe M&As allow CLH to gain a stronger regional  foothold  in view of  the  fragmented  industry structure.


Valuations & Recommendations
Downgrade to NEUTRAL. Following the lower earnings arising from disruptions to its key O&G logistics
segment, we slash our top and bottom line estimates for FY12 by 7% and 1% respectively. We expect its
bunker fuel services to encounter strong headwinds going forward given the current weak global sentiment.
We anticipate CLH’s 1QFY12  results to be lacklustre  as 1Q is always the weakest quarter for the group
owing to  the festive  season  which results in fewer working days.  Hence, we downgrade our FV from
RM2.10 to RM1.94 based on 6x FY12 EPS. In view of the limited upside after seeing its share price surge
12% over the past 3 months, we downgrade the stock from BUY to NEUTRAL.

Source: OSK188