Highlights / Comments

• Following are the salient points from analyst briefing yesterday.

• The upcoming REIT listing announcement is expected to be made by end-October as the valuers have just completed their recent visits on their warehouses with proper valuation on the to-be-listed warehousing assets expected to be finalized by this month. This indicates that the application to SC could be somewhere in October, in our opinion, providing further catalyst to its share price.

• Recent slight weakness in its logistics service revenue is as a result of cessation of part of its haulage business which fetched low margins. The group, on the other hand, has secured 2 major clients from Japan (car manufacture) and China (major smart phone manufacturer). As these contracts involve more specialized services, better margins are expected to be gained from the work done. This would help to bring back growth for its logistics business from 2Q17 onwards.

• With regards to the e-commerce secular trend, the group is still exploring with several major online platform both locally and foreign-based. As entrants of new players put market share as their main objective (instead of profitability), rates quoted from the e-commerce space for logistics services are very competitive. As such, the group opts to carefully review its pricing before committing to the business to avoid significant deterioration in margins.

• In the group’s property division, the group has new property development project in the cards. The project is worth RM170m involving mix development (both commercial & residential) with target launch expected to be in FY18. This would help to bring continuity in its property earnings base amid overall property market slowdown. Current unbilled sales stood at RM246.6m, providing further cover for its property revenue in the next 2 years.

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. Recent share price correction has created buying opportunities 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 - 2 Sep 2016