CJ Century Logistics Holdings Berhad (CJ Century) has been downgraded to a SELL with a revised target price of RM0.25, down from RM0.30. Analysts at MIDF have adjusted their earnings forecasts for FY24E, FY25F, and FY26F downward by 41%, 15%, and 14%, respectively, due to anticipated lower margins. The revised target price is based on a 12x FY25F valuation.

The company's recent financial performance fell short of expectations, with a core PATAMI of RM1.0 million for 2QFY24, amounting to only 25% of the full-year estimate. Although revenue matched projections, the shortfall was attributed to reduced margins. Total logistics revenue decreased by 9.0% quarter-on-quarter and 17.7% year-on-year, primarily due to diminished business from freight forwarding customers, impacting other logistics services.

CJ Century's high-margin oil logistics division, which operated floating storage units near Port of Tanjung Pelepas (PTP), ceased operations during the quarter, resulting in an operating loss of RM0.6 million. Additionally, the procurement logistics division underperformed due to decreased export activities in home and electrical appliances, leading to a 21.3% quarter-on-quarter and 4.8% year-on-year revenue decline. Core PATAMI fell significantly by 42.4% quarter-on-quarter and 70.5% year-on-year due to diseconomies of scale.

Looking forward, the decline in the freight forwarding segment is linked to reduced shipment volumes from South Korean-based customers, who account for 30% to 35% of the revenue. CJ Bio, a major customer, has faced increased competition from Chinese suppliers, further affecting demand for logistics services. The stock currently trades at 14.3x FY25F, aligning with its five-year historical mean. A key driver for future earnings improvement would be a faster recovery in shipment volumes.