Review

• Tiong Nam’s 9MFY17 core profit of RM43.3mn came in below expectations at 48% of our full-year forecast and 53% of consensus estimates. The variance was largely due to delayed contribution from new ASRS warehouse and lower-than expected progress billing from Pinetree Residence development.

• 9MFY17 core profit surged 3.9% YoY to RM43.3mn due to lower effective tax rate arising from increased non-taxable income. However, at PBT level, 9MFY17 earnings contracted by 12.8% underpinned by higher depreciation and interest expense on the logistics and warehousing division (L&W) as well as lower contribution from the property development division.

• QoQ, 3Q16 core profit increased by 19.2% due to higher contribution from L&W division, underpinned by higher business activities and reduction in direct operating expenses.

Impact

• We cut FY17-18 earnings projections by 27.7% and 13.7% after reducing contribution from the new ASRS warehouse and Pinetree Residence.

Outlook

• After the commencement of trial run for its cross-border logistics service between China and Malaysia, via Hanoi--Laos--Bangkok in Nov-16, the group has decided to go ahead with this venture with a frequency of one trip per day. We think this strategy has huge potential to be one of the earnings drivers in the future as it will provide an alternative to customers, especially e-commerce players, who require speedy delivery at reasonable costs.

• On the property front (see Figure 1 and 2), the construction of Pinetree Residence had reached rooftop in Jan-17. Accounting-wise, the group only recognized 34.5% completion as at Dec-16 (from 27% completion in Sep- 16). For 4QFY17, we can expect more works done, thus higher billing as internal building works usually progress faster than the superstructure. As at Dec-16, Tiong Nam’s unbilled sales stood at RM167mn.

Valuation

• Given the earnings downgrade, we cut Tiong Nam’s SOP-price to RM1.82/share (from RM2.03/share previously) (see Figure 1). We downgrade Tiong Nam to Hold as the lower-than-expected 9MFY17 earnings performance is expected to affect investors’ sentiment

Source: TA Research - 21 Feb 2017