CENTURY (7117) - SOS Century Logistics, can or not? Part 2
CENTURY LOGISTICS RM1.11 PER SHARE OR RM434 MILLION
1. Lets used Dato' Cheah's approach, good biz model, good people, and good price?
GOOD BIZ MODEL?
BIZ #1 - CONTRACT LOGISTICS & PROCUREMENT LOGISTICS
2. Century's existing biz model is far from great, ROE10%, Profit Margin 9%, Growth is unstable for last 5 years.
3. Century, at RM434 million, last 5 years average profit of RM25m (growth of 20% from 2018 due to increase capacity), net cash position about RM24m, so at RM410m / RM25m = PE 16x. Assume 2-3 years later, with 20% growth from average profits, then it will be around RM30m, PE of 13.7x. Reasonable for company with growth.
4. However, its biz model is Moderate at best, given the key financial indicators of the past 5 years. I wouldn't pay RM434m for this biz alone.
BIZ#2 - PARCEL DELIVERY - NEW BIZ TO BE INTRODUCED
5. CJ Korea Express (CJKE) bought abotu 31% of Century Logistics.
6. CJKE has the largest market share of 40% of parcel delivery in Korea, total market size about RM60b.
7. CJKE in Korea has the competitive advantage over its competitors for parcel delivery of 10-15% cheaper.
8. Century, leveraging on CJKE expertise and cross selling, is introducing parcel delivery biz in Malaysia and the REGION, 2Q2017.
9. Based on GDex's parcel delivery, it's biz model is good, ROE of 20%, PAT Margin of 15%, low capex, high growth past 5 years, latest profit is about RM38m vs 4 years ago is about RM15m. GDex started its parcel delivery 4 years ago.
10. Don't be happy so soon, Nationwide Exp and another smaller parcel delivery is making losses. It need certain volume to be profitable, like any biz.
GOOD PEOPLE?
11. I believe they do have good people in order to be No.1 parcel delivery with 40% market share and some competitive advantage in this sector.
12. Bringing their expertise to Century will be an advantage.
13. More importantly, they are bringing new custormers via its Lazada Asean signing of exclusive contract.
GOOD PRICE?
14. Only IF they can do the NEW BIZ, meaning at least half the size of GDex in 4 years, i.e. a target revenue of RM100m, although management wants RM200m by 2020.
15. GDex market cap today is RM3.2b.
CONCLUSION
GOOD BIZ MODEL?
GOOD PEOPLE?
GOOD PRICE?
Well, only ONE LITTLE PROBLEM, do you believe the management can successfully intorduce the new "parcel delivery" biz into the REGION. Just providing some facts and figures.
GOOD JUDGEMENT
So, at RM1.11 can or not? Good judgement required. The simple question is, can CJKE helps Century in the new biz venture? However, be ready that first year of new biz, normally quite tough.
GOOD LUCK.
CENTURY (7117) - SOS Century Logistics, can or not? Part 2
http://klse.i3investor.com/blogs/sosfinance/120767.jsp
