More Positive on Logistics and Warehouse Segment

• Tiong Nam reported a core net loss of RM1.6m in 1HFY21 due to losses in 1QFY21 given the operational disruption during the Movement Control Order (MCO) period.
• We lift the core EPS forecasts for FY21-23 by 7-12% to reflect better margins for the logistics and warehousing segment.
• PER multiples may stay elevated over the near term as investor sentiment remains strong on vaccine-related plays. We upgrade Tiong Nam to a HOLD with a higher RNAV-based 12-month target price of RM0.76.

Returned to the Black in 2QFY21

Tiong Nam recorded a headline net profit of RM3.7m in 2QFY21 (vs a RM5.5m net loss in 1QFY21). This was attributable to a pick-up in logistics and warehousing revenue by 21.7% qoq from the recovery in sales during the Recovery Movement Control Order (“RMCO”). The property development segment also saw higher revenue of RM0.7m while investments and the hotel segment saw declines of 4% qoq and 27% qoq respectively. In tandem with the higher revenue, the EBITDA margin improved by 7ppt to 21.8%. Excluding one-off items, Tiong Nam returned to the black with a core net profit of RM5.0m in 2QFY21.

1HFY21 core net loss was due to the weak 1QFY21 which was impacted by MCO

Tiong Nam reported a core net loss of RM1.6m in 1HFY21 (vs a core net profit of RM3.0m in 1HFY20). Revenue was lower by 11% yoy, mainly due to lower contribution from all segments as a result of the MCO in 1QFY21 – logistics and warehousing segment (-4% yoy), property segment (-96% yoy) and hotel segment (-81% yoy). Sequentially, pre-tax profit was lower by 88% yoy to RM0.9m attributable to weakness across all segments and the EBITDA loss from the property segment of RM3.6m (vs profit of RM8.0m in 1HFY20). Overall, the 1HFY21 net loss tracked above our previous full-year net profit forecast, due to better margins from the logistics and warehousing segment.

Upgrade to HOLD With a Higher Target Price of RM0.76

We upgrade Tiong Nam to HOLD with a higher RNAV-based target price of RM0.76 after raising our margins for the logistics and warehouse segment and imputing a higher terminal growth assumption for the logistics and warehouse segment of 1.5% (previously 0.5%) in view of rising demand from e-commerce activities and potentially from distribution of the Covid-19 vaccine. We have also incorporated the latest net book value of its investments and hotel and dorm segment into our RNAV calculation. We believe the current high PER valuation is supported by strong investor appetite for Covid-19- vaccine-related plays particularly for logistics services names with established cold-chain services with a wide reach across ASEAN.

Source: Affin Hwang Research - 24 Nov 2020