Tiong Nam Logistics Holdings Berhad

Transcription

1 08 March 2017 Visit Note Tiong Nam Logistics Holdings Berhad Maintaining pole position in logistics Maintain BUY Unchanged Target Price (TP): RM1.93 INVESTMENT HIGHLIGHTS Tiong Nam experienced a temporary fall in demand for logistics services Demand is set to pick up in 2017 and expansion plans are on track RETURN STATS Price (7 Mar 2017) Target Price RM1.62 RM1.93 The company is venturing into cross-border trucking and last mile delivery services to enhance its core product offering Property development business will be subdued Maintain BUY with unchanged TP of RM1.93 Expected Share Price Return +19.1% Expected Dividend Yield +3.7% Expected Total Return +22.8% We attended Tiong Nam s analyst briefing which was hosted by Mr. Victor Ong (ED) and Mr. Law Tik Long (CFO). Management updated analysts on the performance of its 9MFY17 results and business outlook covering its logistics & warehousing and property development segments. The company s management also shed more light on its plans to expand its cross-border trucking business and e-commerce logistics division. Overall, we maintain our positive view on the prospects of the logistics & warehousing business while maintaining our cautious view on the property development segment. Meanwhile, the cross-border trucking and e-commerce ventures could provide new avenues of growth for the company. POLE POSITION IN INTEGRATED LOGISTICS Temporary blip in demand. Tiong Nam acknowledged that it had received lower volume of orders for its core logistics and warehousing business in 9MFY17 due to a more cautious stance taken by its customers in light of uncertainty in the domestic economy which was exacerbated by volatile currency markets. However, management noted that business has picked up since Nov-Dec 2016 as consumer sentiment improved. Looking ahead, we share management s optimism that the segment should perform well in 4QFY17 and FY18 with resumption in external trade growth and improving consumer sentiment trickling down to integrated logistics service providers. Hence, our revenue growth forecast remains unchanged at +7% and +10% for FY18 and FY19 respectively. STOCK INFO KLCI 1, Bursa / Bloomberg Board / Sector Syariah Compliant 8397 / TNL MK Main/ Trading Services Yes Issued shares (mil) Par Value (RM) 0.20 Market cap. (RM m) Price over NA wk price Range RM RM1.76 Beta (against KLCI) mth Avg Daily Vol 0.73m 3-mth Avg Daily Value Major Shareholders RM1.17m TNTT Realty SB 24.48% Yoong Nyock Ong 20.27% Astinas Construction 4.97% MIDF RESEARCH is a unit of MIDF AMANAH INVESTMENT BANK Kindly refer to the last page of this publication for important disclosures

2 Expansion plans unhindered. Having invested RM97m in 9MFY17 (12MFY16 capex: RM124m) to construct two new warehouses in Krubong (Melaka) and Tanjung Langsat (Johor), the company s warehouse footprint increased 3% or 127k sq. ft. to 4.9m sq. ft. Utilisation rate of its warehouses maintained high at 93% hence its future expansion plans remains intact. Recall that the company plans to increase its warehouse space to 5.5m sq. ft. by FY18 and 7m sq. ft. by FY19. With its expansion plans on track, Tiong Nam is likely to retain its market leading position in integrated logistics for the foreseeable future. CROSS-BORDER TRUCKING AND LAST MILE DELIVERY TO COMPLIMENT ITS CORE BUSINESS Identified opportunities in cross-border trucking. With the bulk of Malaysia s imports and exports being handled through sea and air freight, Tiong Nam has identified an opportunity in land transport: cross-border trucking. The service has several advantages such as a 5-7 day door-to-door transit time from Shenzhen to KL compared to days by sea or 24 hours by air which deliver goods to the port and airport respectively. Goods transported by sea or air will then have to be picked up by trucks at the port or airport which would incur additional time and money. Meanwhile, trucks can make several stops along routes (Shenzhen-Hanoi-Yangon-Savannakhet-KL-Singapore) to pick up or deliver items, ensuring that vehicles are laden with goods and maximising the journey. Distribution centers set up along the route. With distribution centers close to completion in Shenzhen, Hanoi, Yangon and Savannakhet, adding to its existing facilities in Thailand and Singapore, Tiong Nam expects the service to commence in FY18. Thus far, the service has received good response from clients with a couple of contracts secured with MNC companies. While contribution to earnings would be minimal in FY18 with an initial trucks (out of its 2,349 vehicles fleet) plying the routes, we believe the service would be complimentary to its core integrated logistics business. (Sources: Company, MIDF Research) Venturing into the last mile delivery business. Tiong Nam would be launching its new courier service provider in 1QFY18 (2QCY17). Currently, the business is handling B2B clients for the delivery of parcels and documents. However, they aim to tap into the B2C market, riding the growth of the e-commerce industry. We believe the venture makes sense for Tiong Nam which is able to apply its strengths in warehousing and trucking. In essence, Tiong Nam would be able to provide an end-to-end logistics service, from the port to a consumer s doorstep. 2

3 Property development segment would continue to be soft. Unbilled sales for the segment fell to RM167.3m as at Dec 2016 from RM246.6m as at June 2016 as key projects including Tiong Nam Business SiLC 7 and Batu Pahat approaches full completion. Meanwhile, the planned launch of Tiong Nam s landed residential project in Kota Masai has been pushed to 2HFY18 from 2HFY17 with revised GDV of RM150m (from: RM170m). (Sources: Company, MIDF Research) Maintain BUY with a TP of RM1.93. We value the company using the SOP method which implies that the company is still trading below the sum of its parts, hence our BUY call. We like Tiong Nam for its market leading position in the integrated logistics industry. Meanwhile, an IPO of its logistics assets into a REIT could provide immediate rerating catalyst for the stock. Business segment/asset Valuation Methodology Value (RM m) Fully diluted value Per Share (RM) Logistics and warehousing Price-to-earnings multiple of 12x FY18 Core PAT Property development WACC of 11% Tiong Nam logistics REIT capitalization rate of 6.6% Subtract: Debt related to warehouse financing Outstanding value Value per share Before conversion of warrants 1, Add: Proceeds from exercise of warrants Exercise price at RM1 by Value per share After conversion of warrants 1, Source: MIDF Research 3

4 INVESTMENT STATISTICS FYE Dec FY14 FY15 FY16 FY17F FY18F Revenue (RM m) EBIT (RM m) Pre-tax Profit (RM m) Core PATAMI (RM m) FD EPS (sen) EPS growth (%) PER(x) Net Dividend (sen) Net Dividend Yield (%) Source: MIDFR, Company DAILY PRICE CHART Source: Bloomberg Tay Yow Ken, CFA

5 MIDF RESEARCH is part of MIDF Amanah Investment Bank Berhad ( X). (Bank Pelaburan) (A Participating Organisation of Bursa Malaysia Securities Berhad) DISCLOSURES AND DISCLAIMER This report has been prepared by MIDF AMANAH INVESTMENT BANK BERHAD (23878-X). It is for distribution only under such circumstances as may be permitted by applicable law. Readers should be fully aware that this report is for information purposes only. The opinions contained in this report are based on information obtained or derived from sources that we believe are reliable. MIDF AMANAH INVESTMENT BANK BERHAD makes no representation or warranty, expressed or implied, as to the accuracy, completeness or reliability of the information contained therein and it should not be relied upon as such. This report is not, and should not be construed as, an offer to buy or sell any securities or other financial instruments. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. All opinions and estimates are subject to change without notice. The research analysts will initiate, update and cease coverage solely at the discretion of MIDF AMANAH INVESTMENT BANK BERHAD. The directors, employees and representatives of MIDF AMANAH INVESTMENT BANK BERHAD may have interest in any of the securities mentioned and may benefit from the information herein. Members of the MIDF Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein This document may not be reproduced, distributed or published in any form or for any purpose. MIDF AMANAH INVESTMENT BANK : GUIDE TO RECOMMENDATIONS STOCK RECOMMENDATIONS BUY TRADING BUY NEUTRAL SELL TRADING SELL Total return is expected to be >15% over the next 12 months. Stock price is expected to rise by >15% within 3-months after a Trading Buy rating has been assigned due to positive newsflow. Total return is expected to be between -15% and +15% over the next 12 months. Total return is expected to be <-15% over the next 12 months. Stock price is expected to fall by >15% within 3-months after a Trading Sell rating has been assigned due to negative newsflow. SECTOR RECOMMENDATIONS POSITIVE NEUTRAL NEGATIVE The sector is expected to outperform the overall market over the next 12 months. The sector is to perform in line with the overall market over the next 12 months. The sector is expected to underperform the overall market over the next 12 months. 5