• An established logistics and warehousing player in ASEAN. TNLOGIS (listed in 1992) is mainly involved in: (1) Total Logistic; (2) Transportation; (3) Warehousing; (4) Forwarding; (5) Cold chain; (6) Crane services; (7) Technology deployment; (8) Project cargo; (9) Property development etc. The group owns over 70 warehouses in the region, with a combined storage capacity of over 5.7 million square feet, including general warehouse, bonded warehouses, cold rooms and free trade zone warehouses. It is also the largest trucking company in Malaysia, with a fleet of 2,000 trucks of various capacities including open, box/bonded and refrigerated containers, enabling it to transport goods of varying temperatures including dry, chilled and frozen. In 9MFY16, this division contributed 75% to revenue and around 46% to EBITDA.
• Sizable landbank for future expansions. TNLOGIS also owns sizable land bank which can be used for future expansion. This distinct advantage is a crucial factor which guarantees their customers that warehouses are available at any point of time and location, giving them an edge over other logistic players.
• Promising outlook. On property development, TNLOGIS is involved in construction of small industrial parks and customized warehouses with total GDV near RM1bn. Its projects are situated at in Alam Premier Industrial Park in Port of Tanjong Pelepas (Johor), Tiong Nam Industrial Park (in Shah Alam, PJ, Senai, Kempas, Tebrau, Nusajaya etc) Southern Industrial and Logistics Clusters, Nusajaya (SiLC) and Tiong Nam Business Parks in Johor. In 9MFY16, this division contributed 25% to revenue and 45% to EBITDA.
• TNLOGIS is likely to benefit from the growing logistic industry in Iskandar Malaysia as well as Singapore (to reap the potential benefits from TPPA) as some multi-national companies at the southern tip is expected to choose logistic provider in Johor rather than Singapore due to cost factor. We understand that average rental of warehouse in Johor is approximately RM3 psf vs S$4.00 psf in Singapore.
• Rerating catalyst from warehouse REITs IPO. The company is mulling potential of spinning off its warehouses under a REIT structure to unlock values as well as part of the alternatives to bring down the gearing ratio. According to industry sources, the exercise is set to come to fruition by end 2016. Based on the company’s lates t accounts as at 31 Dec, TNLOGIS has property, plant and equipment worth RM679m, investment properties worth RM98m and total net debt of RM510m.
• Poised for a downtrend line breakout. With prices holding above lower Bollinger band and the key 10-d/20-d/30-d/200-d SMAs, TNLOGIS appears to be at the tail end of its symmetrical triangle consolidation pattern to launch a breakout soon. A decisive breach above RM1.29 (downtrend line and 100-d SMA) is likely to spur prices higher towards RM1.35 (61.8% FR) and RM1.50 (52-week high) before reaching our long term objective of RM1.59 (123.6% FR) levels.
• Key supports are RM1.22 (200-d SMA) and RM1.15 (lower Bollinger Band). Cut loss at RM1.13 (21 Jan low)
• Attractive risk to reward ratio with 26.1% upside against 10.3% downside. At RM1.26, TNLOGIS is trading at 1.11x P/B, about 11% lower against its peers. All in, we see a good risk to reward ratio for investor with a theoretical entry price of RM1.26 given that the downside to the cut loss zone of RM1.13 is 13 sen (-10.3%) while the upside to the LT target of RM1.59 is 33 sen (+26.1%).

Source: Hong Leong Investment Bank Research - 24 Feb 2016