Results

• Below expectations – 3QFY18 core net profit came in at RM10.6m, bringing 9M18 core profit to RM33.9m. The results were below expectations coming in at 70.0% of HLIB and at 68.0% of consensus forecast.

Deviations

• Higher than expected pre-operating cost on capacity expansion.

Dividend

• None.

Highlights

• YTD: Core profit declined 15.8% to RM33.9m from RM40.2m, dragged by losses from logistics caused by high startup costs on expansion. Nevertheless, contribution from the property development division has improved significantly attributed to construction progress for the flagship projects in Nusajaya (SLiC7 and Pinetree project) as PBT increased 31.5% to RM50.5m from RM38.4m.

• YoY: Core net profit declined 33.2% mainly dragged by losses from the logistics division due to initial startup costs from the cross border business and new warehouses involving new total logistics contracts secured. The property development division remained flattish based on PBT.

• QoQ: Core earnings declined 35.3% mainly due to a drop from the property development division of 33.47% to RM16.6m PBT from RM25.0m PBT, slightly cushioned by the improvement in the logistics division to breakeven from PBT of RM3.9m.

• 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;

• Surge in fuel prices;

• Decline in domestic trade volume

Forecasts

• Unchanged.

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

• Maintain HOLD with our SOP derived TP of RM1.34 (see figure #3).

Source: Hong Leong Investment Bank Research - 27 Feb 2018