Results

• Within expectations but below consensus– 1QFY17 core net profit came at RM13.4m, accounting for 24.5% and 17.8% of our and consensus forecast.

Deviations

• None.

Dividend

• None.

Highlights

• YoY: Core net profit declined slightly by 1% to RM13.4m in 1QFY17 YoY due to weaker haulage subdivision within logistics on the back of strong competition coupleid with lower property revenue due to major project completion in Johor Bahru.

• QoQ: 1QFY17 core net profit surged 17.1% underpinned by stronger seasonal performance from its logistics & warehousing division with revenue up sequentially while operating margins have also improved. This is being partially offset by sequentially weaker property development revenue due to completion of major projects during the quarter.

• Comment: Logistics and warehousing division will continue to anchor the group’s growth in the coming years with e-commerce and resilient increase in B2B trade volume expected

• Meanwhile, property development segment is expected to account for smaller portion of the group’s total revenue moving forward as fewer projects are to be launched in the pipeline in view of challenging medium term property outlook.

Risks

• Contract cancellation from major customers;

• Surge in fuel prices;

• Decline in domestic trade volume

Forecasts

• Maintained.

Rating

• BUY

• Positives – (1) Potential REIT listing of warehouse assets which will bring about asset rerating (2) Sustaining logistics revenue growth

• Negatives – (1) Lumpy property earnings and (2) spike in logistics cost base.

Valuation

• Maintain BUY with SoP-driven TP maintain at RM2.07 (+38% upside). Recent dips in share price appear to be overdone and we believe it presents a good opportunity for buying on weakness as its fundamentals remains largely unchanged.

Source: Hong Leong Investment Bank Research - 30 Aug 2016