Thursday 29 March 2012

CENTURY (FV RM1.94 - NEUTRAL) Corporate News Flash: Looking for More Warehouses


THE BUZZ
Century Logistics (CLH) entered into a Sale & Purchase Agreement (S&P) with Nakamichi SB yesterday to  buy  a piece of leasehold land in Klang, consisting  of  a double-storey factory and office buildings for a total sum of RM19m.

OUR TAKE
Hungry for more warehouses. We are not surprised with this acquisition since  CLH has been  looking for warehouses  in  strategic locations  in its efforts  to expand its warehousing and contract logistics business. As the group’s present 7 warehouses with total capacity of 840k sq ft space is 96% full, we think the price of this newly-purchased piece of  26.93 sq ft  leasehold land (expiring in 30 June 2105)  – which  comes with a double-storey factory and office buildings  - is fair and reasonable as it will enable the group to take its contract logistics business a step further. With a strong clientele base comprising names like Celcom and F&N, we think the group’s contract logistics business should continue to see robust growth, which we  expect would chalk up a healthy y-o-y 8% growth in FY12.

No change in forecast;  CAPEX well within projections. As the acquisition is well within our CAPEX projection, we are maintaining our forecast at this juncture. While we believe that CLH’s contract logistics business will cruise through without a hitch, we are still  only  cautiously optimistic on the group’s core Oil & Gas logistics’  segment,  which experienced an interruption in bunker fuel services in 4QFY11. During that quarter, CLH was asked by the Ministry of Transport’s Marine Department to suspend the services of four out of eight of its floating and storage units (FSUs) in Pasir Gudang from Sept-Nov 2011 due to  works on  the RM5bn deepwater terminal by Dialog Group (BUY, FV RM3.07) in Pengerang, Johor. As a result, the group’s 4Q earnings slid 29% during the quarter.  Meanwhile, management  has  guided that two of its FSUs have resumed operation in new locations, and  that  it is also finalizing the strategic areas for  the remaining 2 FSUs. As such, we believe the group’s 1QFY12 results would still bear the impact of weaker  performance in this division.  That said, we maintain our NUETRAL stance for now, with an unchanged FV of RM1.94, based on 6x FY12 EPS.

Source: OSK188

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