Thumbs up for CJ Century Logistics’ recent acquisition and disposal

The acquisition of a 100% stake in CJKX has proven to be a value-accretive corporate exercise, according to the note 

by M JAY SHEILA / pic credit: cjcentury.com

CJ CENTURY Logistics Holdings Bhd’s value creation from its CJ Korea Express Malaysia Sdn Bhd (CJKX) acquisition and recent disposal of its loss-making courier business has provided enough nuggets to attract the attention of a local research house. 

In its coverage initiation, MIDF Research has a ‘Buy’ on the stock with a target price of 98 sen, noting its valuation was derived by pegging its FY23F earnings per share (EPS) to target PER of 16x. 

The company, founded by Datuk Phua Sin Mo in 1970, was listed on the Main Market of Bursa Malaysia in 2001. 

CJ Century joined the family of CJ Logistics, South Korea’s global logistics players when CJ Logistics Asia (previously known as CJ Korea Express Asia) acquired a 30.9% stake in Century Logistics (now known as CJ Century) from Datuk Phua and his family in 2016. In 2020, CJ Century acquired a 100% stake in CJKX for RM100m via the issuance of 200m new shares to CJ Logistics Asia, thus increasing the latter’s shareholding to 54.3%. 

CJ Century, a provider of supply chain solutions, has core businesses in total logistics and procurement logistics. 

In providing its customers with integrated logistics services, CJ Century owns 130 vehicles that are equipped with fleet management systems. It also operates a total of 30 warehouses and distribution centres nationwide that have a total storage capacity of 4.5m sq ft (418,063.68 sq m), which effectively places it as the third-largest warehouse operator. 

The acquisition of a 100% stake in CJKX has proven to be a value-accretive corporate exercise, according to the note. 

CJ Century completed the acquisition of a 100% stake in CJKX in 2QFY20 for RM100 via the issuance of 200 million new ordinary shares to CJ Logistics Asia, thus allowing the latter to increase its shareholding in CJ Century from 30.9% to 54.3%. 

In FY21, it disposed of its loss-making last-mile delivery business which had cumulatively made a loss of RM70 million since it commenced operations in FY18, with the bulk of the losses attributed to the costs incurred for the expansion of trucks, network and manpower. 

“Throughout the four years of its operations, CJ Century has greatly suffered from the stiff competition and cut-throat margins. We view the exit from this business as a necessary move for CJ Century to stem further losses to the group by reprioritising their resources on their core competencies,” according to the note. 

CJ Century derives about 30%-35% of its total revenue from its Korean customers including Coway, CJ Bio, Hankook Tires, Hanwa Q Cell and Lotte Chemical with 15 Korean employees who solely focus on tapping and serving the ever-expanding Korean businesses operating in Malaysia.