Tiong Nam’s FY20 results were disappointing. The group posted a core net loss of RM4m despite a 2% yoy increase in revenue to RM603m, mainly due to higher depreciation (+50% yoy) and interest expense (+6% yoy). We believe the Covid-19 pandemic will continue to impact FY21E earnings. Logistics & warehousing services volume has yet to return to normal, while weak consumer sentiment will continue to weigh down its property and hotel divisions. We maintain our SELL call with a lower TP of RM0.34 in view of the challenging outlook.

Below Expectations

Tiong Nam posted a core net loss of RM4m (-27% yoy) in FY20 compared to the consensus and our net profit forecasts of RM7.4m and RM5.8m, respectively. The variance was mainly due to higher-than-expected depreciation, finance costs and tax expense. The group revenue was up by 2% yoy to RM603m due to higher revenue from its logistics & warehousing (1% yoy) and hotel & dormitory segments (+36% yoy), which was partially offset by lower property development revenue (-8% yoy). EBITDA margin improved by 3ppt in FY20 partly due the adoption of MFRS16: Leases which was effective since April 2019.

Core Net Loss of RM8m in 4QFY20

The group incurred a net loss of RM4.3m in 4QFY20 vs. net profit of RM1.8m in 3QFY20. Revenue dropped 9% qoq on the back of lower revenue from all divisions due to the slowdown in business activities following the Covid-19 pandemic. Depreciation and interest expenses were higher by 26% and 54% qoq, respectively, mainly due to the adoption of MFRS16. Excluding one-off items which includes fair-value gains on assets-held-for-sale of RM7.4m and fair-value loss on quoted investments of RM5.1m, the group posted a core net loss of RM8m in 4QFY20.

Cut FY21-22E Earnings by 2-68%

We cut our FY21-22E earnings by 2-68%, and introduce our new FY23 earnings forecasts. We gather that the logistics & warehousing business has yet to return to pre-Covid-19 levels. With the weak consumer sentiment and economic downturn, we expect its property and hotel & dormitory business to remain lacklustre. The occupancy rates for its hotels and dormitories remain low at 20-30%.

Maintain SELL

We reiterate our SELL call on the stock with a lower RNAV-based target price of RM0.34. We remain cautious on the stock as earnings visibility remains limited, especially for its property and hotel segments. Key risk: economic recovery prior to expectations.

Source: Affin Hwang Research - 23 Jun 2020