Highlights

• Tiong Nam was founded in 1975 and continuously expands to become one of the largest total logistic providers in the region. Debuted on Bursa Malaysia in 1992, today, Tiong Nam also has presence in Cambodia, Vietnam and China.

• Services offered includes (1) Total Logistic; (2) Transporting; (3) Warehousing; (4) Forwarding; (5) Cold Chain; (6) Crane Services; (7) Technology Deployment; (8) Project Cargo; (9) Property Development; and (10) Other Services (Figure #1).

• Tiong Nam does not only own the warehouses, they also own the land title. In fact, they have a sizable land bank which can be used for future expansion. We think this is a crucial factor which guaranteed thei r customers that warehouses are available at any point of time and location. As such we believe that this is the key element which differentiates Tiong Nam from other logistic players.

• On property development, Tiong Nam is involves in construction of small industrial parks and customised warehouses. At present, they have seven projects in thei r hands with total GDV of RM1.4bn (Figure #3).

• We think that Tiong Nam will benefit from the growing logistic industry in Iskandar Malaysia as well as Singapore, because some multi-national companies at the southern tip choose logistic provider in Johor rather than Singapore. We understand that average rental of warehouse in Johor is RM2.50 psf versus S$3.00 psf in Singapore.

• Tiong Nam is also riding on the strong Singapore dollar as approximately 15% of revenue is in S$.

• We gathered that circa 75% of retained earnings will be used for capital expansion (i.e. accumulate landbank, buildup warehouses) and this explains the issue of high gearing ratio faced by the company. No dividend policy.

• The company is mulling potential of spinning off its warehouses under a REIT structure as part of the alternatives to bring down the gearing ratio. Assuming all the warehouses are REIT-ed, Tiong Nam will be ranked at #16 (by asset value) out of 18 REIT players in Malaysia (Figure #4). However, no timeline was given on such exercise.

Risks

• Slower than expected manufacturing/trade industry.

Forecasts

• None.

Rating

• Positives – (1) Appreciation of S$; (2) Signing of TPP to induce import; and (3) Diversified clientele to mitigate impact on specific industry.

Negatives

• High capex requirement.

Valuation

• Currently trading at undemanding valuation of less than 7x P/E (peers average of 11x), P/B of 1.0x (peers average of 1.3x), and dividend yield of 3.5% (peers average of 2.2%); making it the cheapest pure play on total logistic player theme (Figure #6).

Source: Hong Leong Investment Bank Research - 12 Oct 2015