News

• TNLOGIS had on 31 October 2016 entered into a Memorandum Of Understanding (“MOU”) with Encorp Bukit Katil Sdn Bhd ("EBKSB") to jointly develop commercial and housing projects on 100 acres of land, which is part of the 641 acres Bukit Katil Land with EBKSB being the Master Developer. 

• The MOU stipulates the Parties’ mutual understanding in relation to JV Project, which will be formalized in a joint venture agreement to be entered into between TNLOGIS and EBKSB on terms and conditions to be mutually agreed (“JVA”). 

• If conditions are met, TNLOGIS would be managing and coordinating their development as per the integrated township development master plan.

Financial Impact 

• At this juncture, details of the proposed development are not known yet as it are still subject to the discussions between TNLOGIS and EBKSB (6 months from 31st October 2016). 

• Landbank would be purchased from undisclosed 3rd party company with pricing yet to be fixed at the time of writing. 

• To illustrate, we have assumed RM10m/acre assumption (lowest bound based on TNLOGIS’s existing projects), our back of the envelop GDV calculation is estimated to be at RM1bn. According to our channel checks, the project would be in 3 phases to be launched over 6 years. 

• Assuming 10% discount rate and 35% PBT margin, we believe the abovementioned project could potentially lift the group’s property RNAV valuation by 22sen/share assuming 50% stake in the JV.

Pros/Cons

• While property market is challenging domestically, we believe the phasing and long project time horizon would be able to reduce the group’s risks through better headroom for project planning and time lead for potential recovery in property market in the medium term. 

• Additional financing, however, would be necessary if the group is unable to secure deferred payment scheme for land bank purchase for the project.

Risks

• Contract cancellation from major logistics customers;

• Surge in fuel prices;

• Decline in domestic trade volume

Forecasts

• Earnings forecast maintained.

Rating

• Buy

• We like the stock due to (i) its potential to unlock warehousing assets through REIT listing (ii) extensive logistics network to benefit from e-commerce upcoming boom and (iii) stable industrial property business.

Valuation

• Maintain BUY on the stock with SoP-driven TP maintain at RM2.07.

Source: Hong Leong Investment Bank Research - 1 Nov 2016