Results

• Within – 2QFY18 core net profit came in at RM16.4m, bringing 1H18 core profit to RM23.3m. The results are within expectations at 48.4% of HLIB and 44.1% of consensus forecast.

Deviations

• None.

Dividend

• None.

Highlights

• YoY: Core net profit surged by 50% mainly driven by stronger property division earnings on the back of higher revenue recognition of Pine Tree project. This was being partially offset by losses from the logistics division due to initial startup costs from the cross border businesses and new warehouses involving new total logistics contracts secured.

• QoQ: Core earnings more than doubled to RM16.4m on the back of stronger property development division due to higher revenue recognition. Logistics division turned to losses.

• 1H18: Core profit declined slightly by 4.4% due to losses from logistics caused by high startup costs on expansion. This was being partially offset by stronger earnings from property development division.

• Outlook: We expect Logistics division to experience losses in FY18 dragged by initial startup costs of cross border business and new warehouse capacity.

• Meanwhile, stronger contribution from property development division can be expected in coming quarters as the Pine Tree project would be completed and hence significant profits would be recognized. However, FY19 property earnings are expected to dip due to lack of new property project launches. REIT-listing of its warehousing assets is delayed to FY19 due to unfavorable market environment.

Risks

• Contract cancellation from major customers;

Forecasts

• Cut FY19 forecast by 22% to account of lower property earnings.

Rating

HOLD ↔

• With its REIT listing plan of warehousing assets delayed, near term catalyst is not present for the stock while its medium term earnings outlook remains bleak.

Valuation

• Post earnings revision, SoP-driven TP is reduced to RM1.34 from RM1.87 as we increase our targeted yield to 9% from 7% for its warehousing assets. 10% holding co discount is also applied for its non-core investment holdings which is in paper loss currently.

Source: Hong Leong Investment Bank Research - 28 Nov 2017