Highlights / Comments

• We met up with TNLOGIS management last Friday to learn more about its recent business developments and updates on its upcoming REIT listing. We are more reassured on the company’s long term prospects after the meeting. Aside from the upcoming REIT listing of its warehousing assets, the management also has several business expansion plans in the cards to create more value for the shareholders.

• The group is currently embarking on investment in efficiencyenhancing technologies in its logistics business, namely the Automated Storage Retrieval System (ASRS) (currently only 98k sqft enabled with ASRS) to improve the cargo handling capability of its warehouses. While investment in ASRS system would cost circa 3x more than general warehousing systems, it would enable TNLOGIS to handle 2-2.5x more goods utilizing the same warehousing space. Significant labour costs could also be saved in the process.

• Aside from technology, the group also plans to expand its logistics capacity through increasing warehousing spaces in several busy locations in Malaysia. Notable expansion by the group is a multi-storey warehouse to be built in Shah Alam with an expected capacity of 1m sqft targeted for completion in 2019. Total CAPEX is RM158m spanning 3 years but it is not expected to exert huge strain on the group’s balance sheet as the expansion would be jointly funded with other associated companies. The group is also taking delivery of a 17 axle lines trailer to ready itself for the bidding of project cargo contracts related to RAPID. Revenue contribution for this sub-segment is expected to increase to circa RM30m p.a.

• The group also recognizes the trend of e-commerce in the logistics & warehousing industry. At this juncture, its ecommerce contribution is still minimal to the group but it is in the midst of tendering for contracts with several e-commerce online platform marketplaces like Lazada and etc. With its upto- date warehousing facilities and experience in diverse cargo handling services, we believe that the group is more than capable to ride on the explosive growth of e-commerce market.

Risks

• Overexpansion of warehousing space;

• Surge in fuel pricing.

Forecasts

• Unchanged.

Rating

• BUY

• Positives – (1) Asset revaluation through warehouse REIT listing and (2) Ample landbank for both property and logistics business expansion.

• Negatives – (1) Relatively higher gearing; (2) High rigid cost structure; and (3) highly regulated industry.

Valuation

• Reiterate our BUY call on the stock with SoP-driven TP maintained at RM2.07. We opine that recent share price correction is a buying opportunity on the stock. To note, we have yet to factor in the land value for its 67.2 acres land for future logistics development and 152.7 acres landbank for property development into our valuation.

Source: Hong Leong Investment Bank Research - 25 Jul 2016