Friday, January 14, 2011

Why I Like Century Logistics

In the midst of a bull run, it is hard to stick to your principles of investing. You get dragged to punting stocks left right and center. Stocks you would never consider suddenly looked attractive. Still, one must shift their investing strategy slightly depending on the markets, without sacrificing the basic tenets of investing. As prices run, even so-so counters will rise. It just takes that much harder to locate gems about to start a run up - my type of strategic investing.

Well, Century Logistics fits the bill as the long striving business nurturer. Following the difficult global trading conditions in 2008 and 2009, the company has maintained good discipline and continued to invest logically and expand their revenue streams assiduously. Century Logistics is one of Asia’s leading providers of integrated logistic services. Century provides integrated logistic solutions to clients covering land logistics, warehousing, management of the supply chain, international freight forwarding and so forth.

Century is in a good position to cross sell its various services to customers while gradually offering integrated services to the clients. Century Logistics is currently expanding its warehousing capacity and is looking to attract large companies while providing cross-selling opportunities. Century Logistics is continuing its climb further up the value chain with its strong branding and reputation. The strong branding and reputation is enabling Century to expand even further by enabling Century to bid and participate in larger international deals.

Diversification into favourable segments. Century Logistics is a very vibrant group which has constantly strived to improve itself. It has over the years diversified into a few other activities. Some of these diversifications had been grown very successfully and now contributes to the success and growth of the group. Successful diversifications includes operating Ship-to-Ship transfer of bunker fuels. Century operates in Tanjung Pelepas and Pasir Gudang. Another diversification which has become a staple to Century includes assembling and managing the logistics of electronic appliances for domestic and export markets. This is highly synergistic to Century’s existing operations.

Catalyst #1: Century Logistics has successfully secured a contract with F&N Dairies to provide all transport logistics for the latter’s inbound movement of finished dairy products. The 3-year contract will kick start sometime in June-July this year.This marks Century’s second largest MNC client after Nestle, from which it secured a contract 3-4 years ago. With this big client coming on board, there is good potential of Century securing more sizeable long term contracts. This contract’s contribution to revenue is estimated at RM20m-RM30m a year, especially for Century’s warehousing and land transportation segment, and fetch a net margin of 5%.

Catalyst #2: Management is targeting for the group’s revenue to grow by more than 20% y-o-y. If you consider their EPS and PER you will know that this is a pretty undervalued stocks, still off the radar of most funds. New clients in South America for shipments of microwave ovens and LCDs are also due to come in this year, from which revenue would be earned in EUR, which would in turn enhance the division’s overall margins. For the ship transfer division, management has guided for volume turnover to continue to be encouraging on orders from oil traders.

Catalyst #3: Proxy to improving global trade. Their three core businesses -- third party logistics, oil and gas logistics and procurement and assembly -- should grow further as global trade picks up in tandem with economic growth. To meet the growing demand, he said the company has aggressively expanded its warehouse and storage capacity in Pelabuhan Tanjung Pelepas (PTP) by another 103,000 square feet. The additional capacity was completed by third quarter of 2010. It also intends to have at least 200 units of trucks from 170 units a year ago, a great indication of underlying business demand.

Catalyst #4: Regional expansion underway. Century 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. Indonesia and Vietnam are their targets this year. The company has already ventured successfully into Thailand, India, China, Syria and Argentina.

The company should record revenue and net profits of RM280m and RM29m respectively for 2010. That translates to an EPS of 32 sen on 89.3m shares (inclusive of weighted warrants dilution). Even if you take in the full dilution of 40m warrants, you are still looking at 23 sen net EPS for 2010, and at RM2.00 its a PER of 8.7x.

Judging from the new MNC client, added capacity at PTP and other positives, for 2011 we can assume revenue running to RM325m and a net profit projection of RM33.5m, or a net EPS of 37 sen or 27 sen fully diluted. Even at RM2.00, you are looking at pretty ridiculous PER, its too embarrassing to write it down even.

Plus it has entered into a new growth phase as EPS is projected to grow by 15%-20% yoy for 2011 and 2012 at least. The brand is good, the business rewards longevity and good reputation. Its high time investors take a serious look at this stock. I see it at RM2.80 within the next 6 months. Even then, you are looking at a 2011 PER of just 7.56x or 10.3x fully diluted. Judging by its fundamentals, with just 89m shares, its ripe for a generous bonus and/or split.

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees. The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.


funkie Mojito said...

why only after the stock has surged that u post this? it seems like a trend...

Tze Ken said...

not moving la this counter.. any comment to hold or to cut?