Review

• Excluding fair value gains (RM8.8mn), impairment loss on inventory (RM4.3mn) and other exceptional items, Tiong Nam Logistics Holdings’ (Tiong Nam) 1QFY24 core earnings slipped to a loss of RM3.8mn versus our previous FY24 profit forecast of RM9.6mn. However, we consider this as within expectations as Tiong Nam’s FY24 earnings would be backend loaded with maiden contributions from Senai mega warehouse and Sedenak Tech Valley.

• Tiong Nam registered an adjusted LBT of RM3.1mn for 1QFY24, a sharp decline from PBT of RM4.6mn last year. The dismal performance was mainly due to increases in staff cost to RM32.8mn (+5.3% YoY) and finance cost to RM13.6mn (+39.7%). In terms of breakdown, the logistics and warehousing (L&W) segment recorded a flat revenue growth with LBT RM3.8mn (vs PBT of RM5.1mn in 1QFY23), indicating pricing weakness for the group to pass on the additional costs to customers.

• QoQ, 4Q23 core loss narrowed to RM3.8mn as the greater losses at the L&W segment was partially mitigated by increased profit contribution from the property development division. For this quarter, the property development segment recorded a PBT of RM7.1mn from a loss of RM0.7mn in the preceding quarter.

• The group’s net gearing stood at 1.5x in 1QFY24, a marginal rise from 1.4x in FY23. The increase in gearing was resulted from additional borrowings. Nonetheless, the gross gearing of 1.5x was below the debt covenants (1.7-2.25x). Hence, we do not foresee any major problem for Tiong Nam to roll over its RM401mn short term debts.

Impact

• We finetune our FY24-25 earnings projections slightly higher after incorporating audited FY23 earnings in our forecasts.

Outlook

• Previously, management guided that the 1.1mn sf mega warehouse will be leased to a MNC beginning November, thereby offering 4-month earnings contribution to FY24. With regards to warehouse management contract, the company has submitted its tender to the MNC and believes it has a decent chance of winning the contract.

• For its JV property project at Sedenak Tech Valley, the company is negotiating with 5 interested parties from local, China and Singapore on potential sales or lease of warehouses within this tech park. As such, the company expects some property sales from Sedenak Tech Valley this year.

Valuation

• We maintain Tiong Nam’s sum-of-parts valuation at RM0.76/share (Figure 1). We downgrade the stock to Sell (from buy) as the recent price rally has fully reflected the company’s fundamentals.

Source: TA Research - 29 Aug 2023