Century ... Mar11

Mercury Security Research Report.

BACKGROUND
Century Logistics Holdings Berhad was first listed under the "Trading/Services" sector of the Second Board of Bursa Malaysia during June 2001. Subsequently, the company was promoted to the Main Board of Bursa Malaysia.

“Leading provider of supply chain solutions”
Century is based at Bandar Sultan Suleiman, near North Port in Port Klang, Selangor. The group is now a leading provider of supply chain solutions. From humble beginnings as a forwarding agent back in the 1970s, the group has since diversified into third party logistics (3PL), oil and gas logistics as well as procurement logistics services. Meanwhile, the Group is also currently operating abroad in China, India and Thailand.
Century’s unique model of value-added solutions encompass warehousing and distribution services that can be scaled and customized to the needs of customers based on the demands and delivery service requirements for their products.

With the innovative solutions offered, Century has evolved to managing the contract logistics of some clienteles, where the group provides value propositions that improve operational efficiencies for the clienteles and their end customers.

"Total logistics solutions"

The group has the technology and capabilities to offer their clients total logistics solutions. Their wide ranges of services include the following:

• Supply Chain Management
• International Freight Forwarding
• Assembly and Procurement Services
• Fuel Processing & Storage offshore
• Key Account Management
• Road Transportation & Distribution
• Warehouse Management Services
• Shipping, Chartering & Bunker Services
• Project Handling & Manageme
• Tax Exemptions Consultancy
• Oil & Gas logistics

Century’s management is led by its group managing director (MD) Steven Teow Choo Hing. Steven was appointed to Century’s Board of Directors back in July 1997 and is from an engineering background prior to joining the logistics sector. He was then involved in logistics since 1991, when he set-up a bonded warehouse in Port Klang with several partners.

For its “Third Party Logistics” (3PL) business segment, Century provides services such as port and customs clearances, international sea and air freight forwarding, warehousing, container haulage and land transport. Century has a regional presence in Thailand, India and China and is also represented in 72 countries under its International Freight and Logistics Network.

Under its Procurement and Assembly business segment, Century handles international procurement, assembly, quality control, repackaging and distribution. This involves the assembly of high technology products such as LCD and LED television sets for various multi-national electrical and electronics customers.

In Oil and Gas Logistics business segment, Century currently provides floating storage and trans-shipment services for international oil trading companies. Century is a Ministry of Transport approved-operator for ship to ship transfers of fuel oil and crude oil. The group also provides supply chain management and vessel husbandry services and all this is in compliance to international maritime standards.

VALUATION
In line with the positive performance for its FY10, Century declared a final single-tier dividend of 4 sen dividend per share (DPS), pending shareholders’ approval at the next Annual General Meeting (AGM). Century had earlier paid 2 interim single-tier dividends totalling 5 sen, bringing the total single-tier dividend for its FY10 to 9 sen per share.

“Consistent dividend payout”
Given Century’s strong earnings performance and its recent dividend payout track record (20-25% of net profits), we opine that Century could decide to give out an even higher DPS of 10 sen for its FY11.
With a relatively weak adjusted beta of 0.93 to the KLCI, Century has mirrored KLCI’s performance this year (by -4.3% vs. -2.2% year-to-date (YTD)). Market conditions have also been volatile lately, impacted by the recent political uprisings in the Middle East/North Africa and major earthquake in Japan. Nevertheless, as Century is not a particularly large market-cap stock, this may put a dampener on its market visibility and trading volume.

“Undemanding valuations”
Based on our forecast of Century’s FY11 EPS and a conservative estimated P/E of 5 times, we set a FY11-end Target Price (TP) of RM2.44. This TP represents an attractive 36.3% upside from its current market price. Our TP for Century reflects a P/BV of just 1.0 times over its FY11F BV/share. Meanwhile, the local transportation service sector’s average P/E and P/BV is 14.0 times and 1.4 times, respectively.
We like Century due to its diversified business model, growth strategy, undemanding P/E and P/BV valuations, solid dividend yield and strong ROE. With a strong management team, minimal gearing levels, tight cost-control and efficient operational structure, Century is well poised to have a good year ahead.