KEY INVESTMENT HIGHLIGHTS

• 1HFY20 normalised earnings broadly within expectations

• Commendable occupancy rate of circa 75.0% sustains the profitability of the logistics and warehousing segment

• Absence of new project launches caps earnings of property development segment in 1HFY20

• No signs of break-even for hotel and dormitory segment which has a low occupancy rate of <30%

• Earnings forecast unchanged

• Maintain SELL with an unchanged TP of RM0.39 per share

1HFY20 normalised PATAMI broadly within expectations. Tiong Nam recorded a 2QFY20 normalised PATAMI of RM3.2m (>+100%yoy). This brings Tiong Nam’s 1HFY20 earnings to RM3.0m (-65.2%yoy) which broadly met our full year FY20 estimates at 44.1% but missed street estimates at 35.3%. The lower earnings were due to lingering weakness of its property and hotel segment.

Logistics division remains profitable. The logistics and warehousing segment remained in the black for the seventh consecutive quarter after recording a PBT of RM8.1m in 2QFY20 (+34.7%yoy). This brings 1HFY20 PBT to RM14.7m (+65.8%yoy) for the segment which translates to 5.3% margin. Occupancy rate for its warehouses was commendable at approximately 75.0%. Recall that the company has also commenced operations of its warehouse and sales office in Savannakhet, Laos in March 2019. Therefore, we believe that there is room for margin to grow for the segment due to the addition of new MNC customers and expansion of existing ones which will increase it to around 90% by the end of FY20.

Property segment recorded earnings but still lower. The property development segment recorded a PBT of RM0.2m in 1HFY20, -97.1%yoy lower compared to a year ago. This was mainly due to the absence of unbilled sales as of 30 September 2019 as there were no new project launches. Management noted that its upcoming Kota Masai township project with an estimated GDV of RM150m will be launched in 2HFY20. However, we opine that there could be a further delay given the challenging property market in Johor.

No signs of break-even for hotel segment. The hotel and dormitory segment also recorded losses but at a higher level of –RM9.0m for 1HFY20. The segment has been recording losses since commencement in 3QFY19 with an occupancy rate of around 25-30% which is still far away from reaching its 50% occupancy rate to break even.

Earnings estimates. We make no changes to our earnings estimates as results broadly met expectations. We opine that Tiong Nam’s large clientele base for the logistics and warehousing division will provide support to the bottom line for the remaining of the year in light of the limited earnings visibility in the property development segment and hotel segment.

Source: MIDF Research - 26 Nov 2019