Century Logistics offers exposure to parcel delivery in medium to long term
KUCHING: Century Logistics Holdings Bhd (Century Logistics) offers exposure to parcel delivery, which will ride on the growing importance of e-commerce, analysts observe.
According to the research arm of Maybank Investment Bank Bhd (Maybank IB Research), growth in the medium term will come from Century Logistics’ venture into the fast-growing e-commerce space and parcel delivery will become the new core business.
Maybank IB Research forecasted a three-year revenue compound annual growth rate (CAGR) of 9.6 per cent, backed mainly by the ramp up of Century Logistics’ parcel delivery services.
It noted that as of end-November 2017, Century Logistics had opened 10 branches.
Maybank IB Research assumed a ramp up in the group’s throughput, from 25,000 pieces per day in financial year 2018 (FY18) to 60,000 pieces per day in FY19.
“As for branch openings, Century Logistics targets to open 40-25 in FY18-19, respectively,” the research arm said.
“In the parcel delivery subsegment, Century Logistics will be targeting to grow both business-to-business (B2B) and business-to-consumer (B2C) customers.”
Maybank IB Research’s key forecasts were 14.6 per cent-16.9 per cent revenue growth for FY18-19, mainly driven by the total logistics services (ie. parcel delivery) business and flattish growth for procurement logistics services.
“Upside risks would include new contracts and/or customers for procurement logistics.”
Maybank IB Research’s other key assumptions for the group were softer gross profit margins of 25.7 per cent-24.7 per cent-24.5 per cent for FY17-18-19 as the research arm factored in the growing parcel delivery business, which generally carries lower margins relative to other business segments.
The research arm’s FY17-18-19 core net profit forecasts were RM16 million-17.8 million-18.6 million, supported by expansion in the parcel delivery business.
In the initial years, Maybank IB Research believed Century Logistics will see start-up costs and higher operating expenditure (opex) such as staff costs, rental costs for branches and utility costs, in the group’s parcel delivery business weighing on numbers.
The research arm has assumed effective tax rates of 25 per cent24 per cent-22 per cent for FY1718-19E, adding that FY19 will see tax incentive on parcel delivery investment.
Maybank IB Research noted that as at end-the first nine months of 2017 (9M17), Century Logistics was in a healthy net cash position of RM21.9 million.
With the expected pick-up in capital expenditure (capex) to RM128.9 million-RM40 million in FY18E-19E from RM21 million in FY17E, the research arm believed net gearing will still be manageable at an estimated 22.1 per cent-24.8 per cent by end-FY18-19, respectively.
Meanwhile, for the fourth quarter of 2017 (4Q17), the research arm expected a stronger quarter, partly as tax rates will decline/normalise. FY17E tax rate assumption was at 25 per cent.