Key takeaways from Tiong Nam Logistics Holdings’ (Tiong Nam) analyst briefing are as follows:

• Facing hiring difficulties;

• MNC will commence warehouse operations in Nov-23; and

• Property segment would come to rescue.

No change to our FY24-26 earnings projections. We maintain Sell on Tiong Nam with an unchanged target price of RM0.76/share.

Facing hiring difficulties

In 1QFY24 results performance, there has been a slowdown in movement of goods amid cost escalation thus affected the logistics and warehousing (L&W) segment. As such, the revenue from this segment contracted sequentially for two consecutive quarters despite recording higher warehouse occupancy rate at 88% (vs 85% in 4QFY23). The weakness was further compounded by increases in labour and interest costs, leading to 2 consecutive quarters of LBT of circa RM3.6mn each for 4QFY23 and 1QFY24.

Looking forward, management is cautiously optimistic on the recovery in business volume and hopeful that the L&W segment will return to profitability for the remainder of FY24. Having said that, management believes that labour shortage would remain a thorny issue for the logistics and warehouse industry. Tiong Nam would strive to increase warehouse automations and use other technologies to mitigate the labour shortage problems.

MNC will commence warehouse operations in Nov-23

Tiong Nam sees a silver lining in its Senai mega warehouse, which is expected to prop up earnings from 3QFY24 onwards. According to management, the warehouse has already obtained the certificate of completion and compliance in August and will commence operations in mid-Nov (Figure 1). This new warehouse is expected to generate rental income of approximately RM25mn per year, equivalent to 3.6% of total L&W revenue for FY23.

That said, we understand from management that Tiong Nam would not be taking part in the warehouse management role but could be involved in the logistics as the tenant (MNC) would likely adopt a multiple-operator model for distribution of its products.

Source: TA Research - 7 Sept 2023