Tiong Nam Logistics Holdings Bhd
(Feb 19, 63 sen)
Maintain sell with a target price (TP) of 54 sen: Tiong Nam Logistics Holdings Bhd’s first nine months of financial year 2019 (9MFY19) results are below market and our expectations. Its core net profit declined 80% year-on-year (y-o-y) on lower property earnings, coupled with losses from the investment and hotel and dormitory divisions, partially offset by higher logistics earnings. We cut our earnings per share forecasts by 41% to 54% for FY19 to FY21 estimate, mainly to reflect lower property earnings amid a soft property market. We maintained our “sell” call with a lower TP of 54 sen.

 
Tiong Nam’s 9MFY19 core net profit of RM5.6 million was below expectations, constituting 24% of consensus FY19 forecast of RM23.3 million and 36% of our previous estimate of RM15.7 million. Revenue declined 7% y-o-y to RM453 million in 9MFY19, mainly due to a lower property revenue (56.2% y-o-y), partially offset by a higher logistics and warehousing revenue (6.7% y-o-y). Its property segment remained negatively affected by the soft property market, weighing down revenue growth in the logistics and warehousing segment from an increased client base and an expanding warehouse capacity.

Tiong Nam also incurred investment losses of RM2.7 million, mainly due to fair value losses for its quoted investments. Its hotel and dormitory division had yet to be profitable given the current low occupancy rate of 15%.

Its logistics segment recorded a profit before tax of RM18.1 million in 9MFY19, compared to a loss before tax of RM2.5 million in 9MFY18. Tiong Nam is focusing on increasing its warehouse utilisation which it targets to reach 90% by FY20 estimate, improving its logistics division’s margin. However, its property earnings are expected to remain sluggish on low unbilled sales and high property inventories close to RM440 million.

Therefore, we cut our FY19 to FY21 estimate earnings by 41% to 54% mainly to account for the lower-than-expected earnings. As such, we have trimmed our revalued net asset value-based TP to 54 sen from 60 sen, and reiterate our “sell” call on the stock. — Affin Hwang Capital, Feb 19