• 3MFY18 fell short of estimates

• Logistics revenue rose 13%yoy but profits disappointed

• Property segment performed decently

• Start-up costs incurred for new ventures dampened earnings

• Our call is UNDER REVIEW with last TP of RM2.08

3MFY18 fell short of estimates. Tiong Nam reported 1QFY18 core PAT of RM6m (-58%yoy, -64%qoq) which missed both ours and consensus estimates by a wide margin, accounting for only 7% and 7.5% of respective full year forecasts. The large shortfall was due to operating expenses which doubled compared to a year ago with increases in staff headcount, warehouse footprint and vehicle count. Besides that, start-up costs related to new ventures could have also dampened earnings.

Logistics & warehousing revenue rose 13%yoy. However, EBIT took a sharp dive, falling -68%yoy to RM5.2m following a surge in operating and depreciation expenses. Tiong Nam’s property division, on the other hand, performed decently, registering an EBIT of RM11.6m (+24%yoy) from progress billings from its Pine Tree Residence development in Puteri Harbour, Johor.

While its bottomline might appear underwhelming, we believe that start-up costs related to new ventures might have been the main culprit. These ventures would only delivery meaningful earnings contributions from FY19 onwards, in our view. Among its new ventures, Tiong Nam recently launched its last-mile delivery business, “Instant” in April 2017. Meanwhile, its cross-border trucking business (MalaysiaThailand-Laos/Myanmar-Vietnam-China) is still in its infancy.

New opportunities aplenty. For its last-mile delivery business, we gather that Tiong Nam was able to secure a contract from a Chinese ecommerce platform for an initial run of 3k parcels per day. Apart from that, Tiong Nam’s cross-border business serves a Chinese shipping consolidator for the distribution of e-commerce goods. For its core logistics & warehousing business, we understand that the company recently secured a warehousing and distribution contract for a leading consumer electronics brand. As such, we are not overly concerned of the aggressive ramping-up of operating assets and costs at this juncture.

Our call is UNDER REVIEW with last target price of RM2.08. While the results came in below estimates, we leave our earnings forecasts and target price unchanged, pending an analyst briefing to be held soon. Our last TP of RM2.08 is based on its sum-of-parts, consisting of 1) its core logistics & warehousing business, 2) its property development arm and 3) the value of its warehouses if it were listed under a REIT structure.

Source: MIDF Research - 29 Aug 2017