Century Logistics Holdings - Another potential M&A play

INVESTMENT MERIT

- Another potential M&A play?  Both FREIGHT and CENTURY have rallied after the issue of our OR report on FREIGHT last Thursday highlighting that there could be a potential M&A play on logistics companies in the works. To recap, the share prices  of local logistics companies in the past year had been largely bullish after CENTURY openly declared that it was looking for an M&A target in Feb 2012. The M&A talks resurfaced in November recently, which explained the 12% rise within a week in CENTURY’s share price before it fell back in early January due to its weak 3Q12 results and as its stock warrants were approaching their expiry date (27/1/2013). Nonetheless, the ongoing M&A talks could continue to spur buying interest in the sector.

- Disappointing FY12E but cautiously optimistic on FY13E. CENTURY recorded a lower 9M12 net profit of RM11.7m, which was almost half that of the RM24.2m in 9M11. The weak bottom line performance was due mainly to 1) the declining activities from its Oil & Gas logistics business and 2) continued losses from the operation of its double hill product tanker (Onsys Century I). However, the company expects better FY13 earnings going forward, as  it  is eyeing more logistics contracts from its new and/or existing MNC clients base, such as F&N Group and Pepsi Co., and also due to the expectation for a recovery of the start-up losses at Onsys Century I. As such, we are forecasting a 7.5% YoY earnings growth to RM19.1m in FY13, translating into a FY13 EPS of 19.9 sen. 

- Decent dividend yield.  Despite not having a formal dividend policy, CENTURY has consistently paid out  semi-annual dividends since FY07, with a 32% payout for its latest full FY11. Based on a 30% dividend payout assumption, we estimate a NDPS of 5.6 sen for FY13, implying a decent dividend yield of 3.1%. 

- Fully valued for now, but…. At its current share price of RM1.80, the stock is trading at around 9.1x FY13 PER compared to the sector’s average of 6.3x. Valuing it at 8.0x similar to that of the average PER of small-cap stocks, CENTURY is worth RM1.76. Hence, the stock is FULLY VALUED for now. However, we will relook at the stock, if and when we sense any M&A opportunities emerging.

SWOT ANALYSIS

- Strengths:  Strategic warehousing distribution centres in Port  of Tanjong Pelepas (PTP) in Johor with a total of 460,000 square feet of warehousing capacity.

- Weakness: Overall performance may be affected by the Oil & Gas subdivision, which faced operational issues in FY12.

- Opportunity:  Exploring new business opportunities or/and expansion regionally such as new markets  like South America and Africa.

- Threats: High correlation to the global economic condition.

TECHNICALS

- Resistance: RM1.85 (R1), RM1.94 (R2)

- Support: RM1.70 (S1), RM1.62 (S2)

- Comments:  CENTURY rebounded from the trend line last week.

The overall uptrend remains intact, though the indicators point towards a weak rebound. Thus, we suspect momentum would likely wane at the RM1.85 resistance level.  

Source: Kenanga