TNL’s 4Q FY17 core net profit rose 67% yoy due to higher logistics demand and firmer property-sales volumes, with slight improvement in margins. Expansion in the client base and larger orders from existing clients helped boost logistics-segment revenue, while ongoing project-construction recognition at its flagship Pinetree project drove better margins in the property segment. Reaffirm BUY.

Higher Revenue on New Key Customer Addition

TNL’s revenue rose 30% yoy to RM164m, underpinned by topline growth from both its two core divisions. The logistics-segment topline rose 21% yoy with the addition of a new key customer, as well as higher volume from existing customers. Property segment topline rose 65% yoy largely contributed from the accelerated construction and recognition of its flagship Pinetree project in Iskandar Malaysia (GDV: RM462m).

Bottom Line Boosted by Fair Value Gain

TNL booked a headline net profit of RM38m, which was up 5% yoy. There was a hefty RM26m fair value gain from quoted shares recorded in the quarter. Core net profit rose 67% yoy to RM16m after excluding the exceptional items. EBITDA margin improved to 21% (+1ppt yoy) on higher operating leverage as well as a favourable product mix. Overall results came in broadly within our expectations, but missed consensus estimates.

Treasury Share Distribution

TNL declared a final single-tier dividend and treasury share distribution to shareholders totalling 5.4 sen based on last close, which translates into a decent 3.1% dividend yield. Although FY17 core net profit fell 28% yoy on slowing property sales as well as margin compression for the logistics segment, we expect TNL to resume its earnings growth trajectory in FY18 on growing cross-border logistics, and underpinned by warehouse capacity expansion.Meanwhile, the outstanding sales orderbook of RM132m should sustain Property segment growth.

Reaffirming BUY Rating and TP of RM1.90

We reaffirm our BUY call on Tiong Nam and SOTP-based 12-month TP of RM1.90. We leave our earnings forecasts unchanged pending the upcoming analyst briefing. TNL is an attractive proxy for investors seeking logistics-sector exposure (see The Alibaba effect, 22 March 2017), with the shares trading at 10x FY18E PER. That said, the significant property contribution to TNL’s bottom line (50% of FY17 EBITDA) could weigh on sentiment. Risks: moderating global growth and weak property sales

Source: Affin Hwang Research - 30 May 2017