Costs Blowout Swings CJ Century Logistics Into Third Consecutive Loss

Port Klang, Malaysia-based CJ Century Logistics (BM: 7117) has reported a third quarter loss of 1.2 million Malaysian ringgit ($291,000) despite revenues of 116.2 million ringgit ($27.8 million).

Sank Into The Red

CJ Century sank into the red in the third quarter due to a combination of a marginal decline in revenues but surging costs. Revenues in the third quarter of this year fell by a small fraction of 1%. Direct operational costs increased by 1.6% to 100.9 million ringgit ($24.08 million). That gave a gross profit of 15.3 million ringgit, which was down about 10.5% year-on-year.

However, the damage to CJ Century's results was inflicted by increases in "other" operational expenses and finance costs.

Net "other" operational expenses rose by 27.9%, from 11.4 million ringgit ($2.76 million) to 14.6 million ringgit ($3.49 million). Meanwhile, net finance costs rose by a whopping 420% from hardly anything in the third quarter of 2018 to 2.23 million ringgit ($540,000) in the third quarter of 2019.

Finance Costs Ballooned

Finance costs appear to have ballooned due to an increase in long-term borrowings and, therefore, an increase in interest expenses. Jumping over to the balance sheet shows that non-current borrowings rose between the end of last year (i.e. December 31, 2018) and the end of September 2019 by 55.9%, from 110.5 million ringgits ($26.7 million) to 172.2 million ringgits ($41.12 million).

Profit before tax slumped. Although CJ Century recorded 5.2 million ringgits ($1.26 million) of profit in the third quarter of 2018, it swung to 1.53 million ringgits into the red (a loss of about $365,490) in the third quarter of 2019. That's a difference in absolute terms of 6.74 million ringgits ($1.61 million).

In the notes to the accounts, the company disclosed that its interest expenses on borrowings rose by 112.8%, from 1.17 million ringgits in the third quarter of 2018 to just under 2.5 million ringgits ($595,861) in the third quarter of 2019.

Management Commentary

Commenting on the results, the company said it expects the operating environment "to remain challenging going forward. Although revenue has been growing, the Group is pressured by cost challenges, resulting in the third consecutive quarter of losses being recorded. In particular, the Group is concentrating on expanding its last mile solutions where it is investing heavily to improve delivery capacity. In the meantime, the Courier Services segment is expected to continue recording losses until the operation is stabilized and volumes handled improves further."

The company envisages volumes to increase. There is a new auto-sorter installed in one of its distribution centers that can handle up to 50,000 parcels a day. Further installations will take its capacity to 200,000 parcels a day by 2021.

Nine Month Results

CJ Century also reported its nine-month results for 2019. It reported 380.1 million ringgits ($90.73 million) of sales revenues, up 21.4% on the previous year. But, with surging direct operational costs, up 26.8% to stand at 335.4 million ringgits ($80.1 million); net "other" operational expenses jumping by 27.0% to 44.0 million ringgits ($10.51 million) and a five-fold increase in financial costs to 5.5 million ringgits ($1.3 million), the company incurred a nine-month loss.

Profits of 9.23 million ringgits ($2.23 million) at the nine months ending September 2018 have swung into a loss of six million ringgits ($1.4 million) as of the nine months ending September this year.

The company has five main businesses: integrated logistics (trucking and freight forwarding); ship-to-ship oil logistics; procurement logistics and contract assembly of electronic goods; physical and electronic data management; and also last-mile parcel and courier logistics. At the end of December 2018, the courier business operated 248 trucks.

Segment Results

On a segment-by-segment basis for the nine months ended September 2019, the company's "total" logistics services division pulled in the bulk of the cash with 188.74 million ringgits ($45.06 million), a 2.8% decline on the prior corresponding period. The company attributed this lower result to lower volumes, especially from oil logistics.

Again, in the nine months ending September 2019, The group's procurement logistics segment recorded a huge jump in revenues, up by 50.9%, from 113 million ringgits ($27.31 million) to 170.6 million ringgits ($40.71 million). This increase was attributed to "higher activities" and to higher export sales.

The company's courier services businesses is the weakest of the group; however, it too has shown considerable growth. In the first nine months of this year, the courier business generated 20.78 million ringgits ($4.96 million), which is a massive increase from the same time last year when the segment generated 5.83 million ringgits ($1.41 million). However, the courier services segment made a small loss of about 343,000 ringgits (just under $82,000).

About CJ Century Logistics

Malaysia's CJ Century Logistics has been part of Seoul, South Korea CJ Logistics Group since 2016. CJ Century Logistics operates in 40 countries across 153 cities. It employs over 1,000 people and operates a fleet over 400 trucks.

As at December 31, CJ Century had a logistics facility portfolio of 2.2 million square feet, of which 1.5 million square feet was self-owned. Most of that total is managed at Port Klang, Subang and Shah Alam. It also has five blocks of distribution center at the Port of Tanjung Pelepas.

The U.S. arm of the company was originally established in 1974 as "Korea Express USA" to provide freight forwarding and defense-related transport. CJ Group acquired Korea Express USA in 2012. The two companies were merged to create CJ Korea Express USA Corp. in 2014 and the name was changed to CJ Logistics USA Corp in 2017. The U.S. arm operated 43 vehicles across 16 locations in the U.S. and provides services in the areas of transport, warehousing, freight forwarding and international parcels. 

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