• Tiong Nam is expected to return to the black in FY21 on the back of stronger contribution from its logistics and warehousing (L&W) segment
• However, stellar earnings outlook from the L&W segment will be dampened by ongoing weakness in the property and hotel (P&H) segment
• We reiterate our HOLD call on Tiong Nam with an unchanged RNAV-based target price of RM0.86

L&W Segment’s Outlook Remains Promising

We are positive on Tiong Nam’s logistics and warehousing segment’s earnings prospects moving forward. This is due to its more favourable revenue mix, which contributes to higher margins, and an increase in demand for logistics solutions as well as its extensive and diverse clientele. Tiong Nam remains committed to its Tiong Nam One Belt, One Road vision and is currently increasing its warehousing capacity across Malaysia and Singapore. Its extensive L&W services network across Malaysia and South East Asia also helps to position it as a reliable service partner.

P&H Segment Remains Weak

Nonetheless, we remain cautious of the weakness in the P&H segment. The lacklustre property market will continue to depress the property segment’s contribution, while rising unemployment may deter individuals from buying residential properties. Meanwhile, the hotel segment has yet to be profitable since its inception in 2018. Moving forward, we do not foresee an improvement in this segment. Notably, management is actively looking into disposing this asset. However, we understand that it will be challenging to arrive at an attractive price in the near term, given the weak property market and soft tourism industry, which will dampen the asking price.

Maintain HOLD With An Unchanged Target Price of RM0.86

We maintain our HOLD rating on Tiong Nam with an unchanged RNAV-based target price of RM0.86. We are positive on its L&W segment’s earnings outlook given the rise in demand for its logistics solutions, better profit margins and its diverse clientele. However, we remain cautious on its property segment which is still facing weak market conditions and its hotel segment, where the latter has yet to be profitable since its inception in 2018. Key risks to our HOLD call includes Tiong Nam’s ability to secure more contracts for the transportation of Covid-19 vaccines, a faster/slowerthan-expected economic recovery, higher/lower property sales and a faster/slowerthan-expected recovery in tourism activities.

Source: Affin Hwang Research - 17 Mar 2021