TNLOGIS ended its FY17 on a high note, with earnings rising 23% from last year. It also announced a 1-for-50 treasury share dividend in addition to a first and final DPS of 2 sen. Moving forward, logistics outlook remains largely positive, supported by cross-border trucking and e- fulfilment ventures, coupled with warehousing capacity expansions. Property development outlook remains subdued, with only one new project in the pipelines, coupled with poor take-up rates. We maintain our MARKET PERFORM call with an unchanged TP of RM1.71.

Within our expectations. FY17 core net profit (CNP) of RM59.3m (arrived after adjusting for gains from quoted investments) came in within our expectations at 97% of our full-year forecast, but below consensus at 87%, which we believe is due to over-optimism from the market towards its logistics and warehousing earnings. While the proposed first and final dividend of 2 sen per share was below our expectations of 5 sen, the company also proposed a share dividend of 1 treasury share for every 50 existing shares.

FY17 stronger YoY. FY17 CNP improved 23% YoY from FY16 CNP of RM48.4m, (arrived after stripping-off investment property fair value gains) helped by higher property development earnings, with segmental EBITDA increasing from RM52.5m to RM65.8m (+25%), largely due to unbilled sales recognition, coupled with lower NCI contribution by -76%, from RM5.8m to RM1.4m. However, on the operating profit level, FY17 came in lower by 4%, from RM104.5m to RM100.1m, mainly due to higher operating expenses, especially from its logistics segment. Group revenue came in marginally higher by 1% from RM568.5m to RM575.6m, in tandem with higher logistics revenue by 3%.

4Q17 up YoY, but down QoQ. For the individual quarter of 4Q17, CNP of RM12.9m (arrived after stripping-off gains from quoted investments) rose 63% YoY from CNP of RM7.9m in 4Q16 (arrived after stripping-off investment property fair value gains), in tandem with a 65% improvement in property development revenue, from RM25.5m to RM42.1m. Its logistics segment also saw improved performance YoY in the top-line by 21%, from RM100.5m to RM121.9m. However, QoQ-wise, 4Q17 declined 25%, from RM12.9m in 3Q17, largely due to the aforementioned higher expenses seen during the quarter.

Long-term positive from logistics growth. With the company venturing into cross-border trucking and e-fulfilment services, we expect TNLOGIS to be able to leverage on the growing volume traffic from e-commerce in the longer-run, with earnings impact expected to be minimal in the shorter-term due to gestation. Its warehousing business is also in the midst of capacity expansions, with multi-storey warehouses in Shah Alam, Selangor, set to commence in FY19, which would contribute a further 1.6m sq ft of warehousing space. However, with only one new project in the pipeline (mixed development in Johor, GDV of RM150m, expected completion FY18), coupled with poor take- up rates, we expect forward outlook for its property segment to be subdued for FY19 and beyond.

Maintain MARKET PERFORM, with unchanged TP of RM1.71. We made no changes to our FY18 earnings forecasts, while also introducing FY19 figures. Likewise, we kept our valuations unchanged with an SoP-TP of RM1.71 derived from (i) 14x forward PER on FY18E for its logistics and warehousing segment, (ii) 5x forward PER on FY18E for its property development, and (iii) 1x BV on investments.

Risks to our call include (i) slower-than-expected property development earnings recognition, (ii) slower-than-expected execution of warehousing capacity expansions, and (iii) sooner-than-expected materialisation of its warehousing REIT.

Source: Kenanga Research - 30 May 2017