We attended Tiong Nam’s corporate briefing post the announcement of 4Q17 quarterly results and came away feeling reassured on Tiong Nam’s proposition as a solid total logistics player. TNL’s FY17 core earnings growth moderated on lower logistics demand and poor property sales, but FY18 should be stronger on warehouse-capacity expansion and higher margins from the Property division. BUY.

New Revenue Streams Should Contribute in FY18

A few key takeaways from the corporate briefing hosted by Mr Victor Ong (ED) and Mr Law (FC): (i) the launch of cross-border services and parceldelivery services should contribute close to RM10m to the top line, with an aim to break even in FY18; (ii) TNL continues to expand its warehouse capacity by 10% to capture warehouse demand; (iii) warehouse start-up losses that affected FY17 margins were mostly one-off items; and (iv) the REIT plan is ongoing.

Earnings Recovery Expected in FY18

Management is confident of delivering 10% yoy top-line growth for the Logistics division, underpinned by strong capacity expansion as well as the commencement of the new revenue stream. Both cross-border services and parcel-delivery services officially commenced operations in April 2017 and should contribute meaningfully to FY18. TNL has allocated close to RM30m in capex for the next three years for both of the new revenue streams. Management has also guided for higher sales growth for the Property division, with unbilled sales of RM132m underpinning earnings recognition. Margin from the Property division should trend higher as well, as bulk of unbilled sales should come from the Pinetree project, which has higher selling prices and strong margins due to the residential elements.

REIT Plan Intact

Management remains committed to monetising its warehouse via a REIT. The company is working on finalising the building plans, as well as the listing structure of the REIT and the appointment of a REIT manager.

Building Competencies for Complete Supply-chain Solution

We continue to like TNL for its dominance in total logistics as well as strong expansion in warehouse capacity to capture booming demand for storage space. Its expansion into cross-border services and parceldelivery should lead to strong competencies across the logistics supply chain. We maintain our earnings estimates and TP of RM1.90. Reiterate BUY. Risks: Moderating Global Growth and Weak Property Sales.

Source: Affin Hwang Research - 2 Jun 2017