Tiong Nam’s 1QFY19 core earnings stood at RM8.1m (-18.7% QoQ, +29.7% YoY), coming in at 22.7% of HLIB’s forecast and 20.3% of consensus. Core earnings dropped 18.7% QoQ mainly due to the decrease in Property Development segment contributions as the construction progress for the Pinetree Marine Resorts Project is nearing completion stage. Core earnings increased 29.7% YoY mainly due to increase in customer base from the Logistics and Warehouse segment. Warehouse capacity expansion is still on track to achieve 7.1m sqft by FY20 (from 5.6m sqft currently). We maintain our HOLD recommendation with and unchanged TP of RM1.02.

Within expectations. 1QFY19 core earnings came in at RM8.1m, coming in at 22.7% of HLIB’s forecast and 20.3% consensus. We expect stronger quarters moving forward from higher sales volume of the Logistics and Warehousing segment and improvement in margins (operational scale).

Dividend. None Declared.

QoQ. Core earnings dropped 18.7% to RM8.1m (from RM9.9m) mainly due to the decrease in Property Development segment as the construction progress for the Pinetree Marine Resorts Project is nearing completion stage, which was partially offset by an improvement in the Logistics and Warehousing segment.

YoY. Core earnings increased 29.7% from RM6.2m mainly due to: (i) lower effective tax rate due to non-taxable gains in investment; and (ii) increase in Logistics and Warehousing segment contributions from the increase in new customers as well as business expansion from existing customers, which was slightly offset by a slight drop in the Property Development segment.

Logistics & warehousing. Management continues to focus in increasing its customer base in order to improve revenue stream and achieve scale operation. Warehouse capacity expansion is still on track to achieve 7.1m sqft by FY20 (from 5.6m sqft currently).

Only one new property project in sight. The multi-storey semi-detached homes, cluster homes, and shop lots in Kota Masai, Johor Bahru, is the only ongoing project which will be launched at end-FY2019 with GDV of RM150m.

Forecast. Unchanged.

Maintain HOLD, unchanged TP: RM1.02 based on SOP. We project earnings to contract by 20% for FY19 on back of a declining property contribution. Furthermore, we expect further delay in the planned REIT listing due to a low accepted yield threshold of 6.25% as set by management.

Source: Hong Leong Investment Bank Research - 28 Aug 2018