Analysts long-term positive on Tiong Nam’s logistics expansion
KUCHING: Analysts are longterm positive on Tiong Nam Logistics Holdings Bhd’s (Tiong Nam) expansion efforts in its logistics division.
According to the team over at Kenanga Investment Bank Bhd (Kenanga Research), the company has been expanding their logistics division through ventures into cross- border trucking and e-fulfilment services.
Based on the group’s recently released fourth quarter financial year 2016 ( 4QFY16) results, these expansionary efforts have caused operating expenses in the division to rise by 12 per cent year over year (y-o-y) which offset a 3 per cent y-o-y growth in revenue contributed by new commissioned warehouses in Johor and Melaka.
While this has led to a 12 per cent y-o-y decline in the division’s full-year core profit before tax ( PBT) of RM25.3 million, the research arm explains that the effect is to be expected during the gestation period and should improve in coming quarters.
“We expected Tiong Nam to be able to leverage on the growing volume traffic from e-commerce in the longer-run.”
Sharing in this forecast is the research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research) who anticipates Tiong Nam’s margins to improve in FY18 and forward as fewer startup costs will be incurred from it logistics division.
“In addition, Tiong Nam would benefit from better economies of scale for its customised logistics solutions as it secures more clients who operate within similar industries.”
Tiong Nam’s existing warehousing business is also expected to flourish as MIDF Research reports that the takeup rate for its new warehouses in Krubong and Tanjung have been encouraging, and on the whole, the group is maintain an average utilisation rate of above 90 per cent.
“Currently, Tiong Nam operates warehouses spanning 5.22 million square feet ( sqf) and further expansion plans are intact, with a target to increase its warehouse footprint to 5.5 million sqf by FY18 and 7.0 million sqf by FY18,” said the research arm.
On the other end of the spectrum, Tiong Nam’s property development division have posted better numbers with a PBT of RM55.4 million, an 11 per cent y-o-y increase.
Despite the stronger numbers, both analysts are remaining rather cautious on the division as they believe that its outlook for the segment remains murky as its unbilled sales declined to RM132.5 million as at March 2017 from RM167.3 million in December 2016.
MIDF Research explains that this is due to a lack of new development launches and its sole new project in the pipeline, a mixed development in Johor with a gross development value of RM150 million has been pushed back further due to soft property sentiment.
“We expected the forward outlook for Tiong Nam’s property division to be sub-duded for FY18 and beyond,” opined Kenanga Research.
With that said, Kenanga Research is maintaining its ‘Market Perform’ rating on the stock with an unchanged target price ( TP) of RM1.71 and no changes to their FY18 earnings forecasts, while MIDF Research is maintaining its ‘Buy’ rating with a higher TP of RM2.08 to reflect the group’s current gross rental per square feet assumption of RM1.80.
“Meanwhile, an IPO of its logistics assets into a REIT could provide immediate rerating catalyst for the stock, giving rise to the potential of special dividends,” added MIDF Research.