INVESTMENT HIGHLIGHTS

• 1QFY19 earnings below expectations

• Logistics division remains steady

• Revenue of property development experienced a blip

• Revise earnings forecasts downward

• Maintain NEUTRAL with a reduced TP of RM1.02 per share

1QFY19 earnings below estimates. In 1QFY18, Tiong Nam’s normalised PAT increased by +36.6%yoy to RM8.1m. However, the results missed both ours and consensus’ estimates by a variance of more than 5%.

Logistics division remains steady. The logistics and warehousing segment posted a staggering +193.3%yoy increase in PBT for 1QFY19 due to newly secured customers combined with higher value added services provided to existing ones. A catalyst for this segment would be the increase in revenue contribution from multinational companies (MNCs) which is expected to exceed 30% (previously 25% in FY18) by FY20. However, we note that its cross border trucking business may require more time before delivering meaningful earnings contribution amidst strong competition within the industry.

A blip in the property segment. PBT of the property development segment declined by -27.9%yoy to RM6.4m in 1QFY19. We reckon that the profitability of the segment was dented by the construction progress for the Pinetree Marine Resorts Project nearing completion. Moving forward, Tiong Nam will replenish its unbilled sales of RM2.5m as of 30 June 2018, Tiong Nam is expected to launch its Kota Masai Township in Johor by the end of FY19 with and estimated GDV of RM100m.

Revise our earnings forecasts. Immense competition especially within the cross border trucking segment is expected to drag margins moving forward. Therefore, we are lowering our revenue growth assumption which leads to a reduction in our FY19 EBIT margin forecast to below 5.0% from 6.5% previously. As such, our earnings forecasts for FY19 and FY20 are being revised downward to RM41.2m and RM50.4m respectively.

Source: MIDF Research - 28 Aug 2018