Century ... May10

S & P Results Review & Earnings Outlook

• CLH’s 1Q10 reported net profit of MYR5.9 mln, up 457% YoY but down 17% QoQ, was broadly within our expectations, accounting for 23% of our 2010 estimate. Net profit would have been higher if not for an MYR0.5-mln reduction in fair value of available-for-sale financial asset and an MYR0.2-mln translation loss of foreign operations.

• The key driver for the YoY increase was an improved economic environment, which resulted in additional business from existing and new customers, lifting revenue 51% YoY to MYR59.8 mln. The QoQ profit decline was due to higher fixed and operating costs, including depreciation and interest charges upon completion of its new Thailand warehouse in January.

• The 2010 outlook remains firm and we leave our earnings estimates and recommendation unchanged. CLH’s oil & gas logistics business, especially its ship-to-ship transfer operations, is performing well, as lower oil prices result in increased volumes. Its domestic warehouses are fully tenanted, and new business secured in 2009 should contribute as operations are ramped up. However, CLH’s new
Thailand warehouse is expected to lose money as it continues to source for clients. The haulage business continues to be competitive and CLH will not expand this business. The procurement & assembly division is busy with deliveries of LCD TVs to Syria and microwave ovens to Argentina.

Recommendation & Investment Risks

• We maintain our Strong Buy recommendation on CLH and leave our 12-month target price of MYR2.30 unchanged.

• Our opinion is based on the firmer outlooks for the group’s oil & gas logistics operations and total logistics business. CLH’s strong niche in the provision of oil & gas logistics in Malaysia places the group in a good position to benefit from the robust oil & gas sector. Its two warehouses in Port Tanjung Pelepas (PTP) are fully tenanted, and CLH is looking to expand by building a third warehouse in PTP, to be
competed in 3Q10. Beyond that, CLH is also planning to build its headquarters and distribution hub on a 30-acre piece of land it bought last year in Bukit Raja, Klang. CLC is also looking at opportunities to venture into Indonesia and Vietnam.

• Our unchanged 12-month target price for CLH of MYR2.30 is based on a blend of 12.0x 2010 earnings and 0.70x end-2010 book value. Our target multiples are in line with peer valuations.

• Risks to our recommendation and target price include increased oil price volatility, which would encourage CLH’s customers to reduce their fuel oil inventories, and result in lower handling volumes for CLH. A disruption to the global economic recovery would reduce trade flows and negatively impact CLH’s total logistics and supply management business. Further appreciation of the MYR could result in more foreign currency translation losses.