Review

• Tiong Nam’s 1HFY17 core profit of RM27.3mn accounted for 30% of our full-year forecast and 35% of consensus estimates. We consider the results within expectations as the progress billing from Pinetree Marine Resorts project is expected to pick up significantly in 2H17.

• 1HFY17 core profit surged 28.9% YoY to RM27.3mn. This was mainly driven by higher progress billing in the property development division, where PBT increased by 11.2% to RM21.5mn. Elsewhere, the logistics and warehousing services (L&W) segment recorded higher PBT of RM15.0mn (+5.1% YoY) for 1HFY17 due to increased business volume. L&W’s PBT margin remained relatively stable at 7% for 1HFY17.

• QoQ, 2Q16 core profit was little changed at RM13.4mn as higher PBT from the property division has mitigated the drop in business volume for the L&W division. Note that L&W business operation was affected by long festive Hari Raya holiday in 2QFY17.

Impact

• We fine-tune our FY17 earnings marginally lower by 0.7% to factor in the delay in opening of new ASRS.

Outlook

• The construction progress on Pinetree Marine Resorts had reached 27% completion as at Sep-16. This was in line with the target of hitting 56% completion by end-FY17. In our rough estimate, the work progress of estimated 29% will bring about additional revenue of RM87mn based on project GDV of RM462mn and expected take-up rate of 65%.

• We understand from management that Tiong Nam is currently in the final stage of preparation for the commencement operation of new ASRS. However, the commencement date would likely miss our assumption that the new warehouse will open for business in 3QFY17. Management indicated that the ASRS is now targeted for operation in 4QFY17.

• The launch of new housing project in Kota Masai in end-16 will be put on hold as the company will strive to amend the development mix to push the project GDV further. In our forecast, we have not factored in significant sales from Kota Masai project for FY17.

Valuation

• No change to Tiong Nam’s SOP-price of RM2.03/share based on unchanged 13x PE for the L&W segment and 6x for the property (see Figure 1). Maintain Buy on Tiong Nam as investors may get cheap entries into Tiong Nam REIT, which is targeted for listing in 1H17.

Source: TA Research - 29 Nov 2016