FOUNDED in 1975, Tiong Nam (Fundamental: 1.3/3, Valuation: 1.8/3) has grown into one of the country’s largest total logistics and warehousing services provider. Leveraging on its logistics network and large landbank, it ventured into property development in 2011, focusing on industrial properties in the Klang Valley and Johor.

The company’s logistics business has fared well, operating profit growing from RM35 million in FYMar2013 to over RM60 million in FY15. This is a relatively steady business with positive outlook. 

With over 1,900 trucks, Tiong Nam offers a comprehensive range of road transportation services, ranging from cold-room transportation to cross-border transportation. Additionally, it has over 60 warehouses, including bonded and cold rooms warehouses. 

Tiong Nam has maintained above-average margins in this highly competitive industry. Moving forward, it will be investing in greater automation and a RM100 million multi-storey warehouse to further improve its capabilities and cost efficiency.

The property arm, on the other hand, could see some gyrations — depending on the overall outlook for the sector. Strong earnings in the past 2 years — operating profit rising from RM10 million in FY13 to over RM81 million in FY15 — have boosted overall earnings for the company. 

Its RM409 million unbilled sales — twice its property development revenue in FY15 — should support near-term earnings. But over the longer-term, this level of profits may not be sustainable.

Having said that, valuations are not expensive — even if property earnings drop — at trailing 12-month P/E of 6.2 times and P/B of 1.0 times. Yield is also decent at 3.6%, based on proposed final dividend of 4 sen per share for FY2015.

Whilst gearing is high at 89.5%, we believe the bulk of this is tied to its property investments. Land and buildings make up bulk of its RM567 million property, plant and equipment, whose value can be crystallised if say, the company injects its warehouses into a real estate investment trust (REIT).

This article first appeared in digitaledge Daily, on August 12, 2015.

http://www.theedgemarkets.com/my/article/insider-asia%E2%80%99s-stock-day-tiong-nam-logistics-holdings