• Tiong Nam’s 9MFY21 core net profit fell 22% yoy to RM3.1m on weakness in its property, investment and hotel segments due to operational disruption during the various phases of the Movement Control Order (MCO)
• Earnings were above expectations – making up 83% of the consensus and 160% of our previous estimate due to a higher-than-expected profit margin for the logistics and warehousing segment. As such, we raise our FY21-23E earnings by 6-94%
• We maintain our HOLD rating on Tiong Nam with a higher RNAV-based 12- month target price of RM0.86

A Decent Quarter

Tiong Nam recorded a headline net profit of RM6.4m in 3QFY21, a 74% qoq increase, as all segments recorded higher revenue except property development. Notably, logistics and warehousing revenue increased by 7% qoq to RM157.1m attributable to a recovery in sales. Meanwhile, pre-tax profit was higher by 34.3% qoq due to lower other overhead expenses. Excluding one-off items, Tiong Nam reported a core net profit of RM4.7m (-5.4% qoq) in 3QFY21.

Sequentially core net profit fell 22% yoy to RM3.1m, exceeding expectations

Cumulatively, Tiong Nam reported a 9MFY21 core net profit of RM3.1m (-21.6% yoy), which exceeded expectations, making up 83% of the consensus and 160% of our previous estimate. Revenue was lower by 6.5% yoy, as a result of weakness in contribution from the property (-95.7% yoy), investment (-47.5%) and hotel (-48.4% yoy) segments due to the implementation of various phases of the MCO affecting business activities. However, logistics and warehousing revenue grew 2% yoy due to new logistics customers and increased business from existing customers. Pre-tax profit was lower by 6.4% yoy to RM9.8m due to higher logistics and warehousing profit margin.

Maintain HOLD With a Higher Target Price of RM0.86

We maintain our HOLD rating on Tiong Nam with a higher RNAV-based target price of RM0.86 after raising our profit margin assumptions for the logistics and warehouse segment. In view of rising demand from e-commerce activities and potential contribution from recently inked heads of agreement with Yong Tai Bhd to provide distribution services for the latter’s COVID-19 vaccine, we turn more positive on its long-term earnings outlook. We believe the current high 2021E PER valuation of 99x is supported by strong investor appetite for Covid-19-vaccine-related plays, particularly logistics services companies with established cold-chain services with a wide reach across ASEAN.

Source: Affin Hwang Research - 23 Feb 2021