By Xavier Kong
UOB Kay Hian (UOBKH) initiated coverage on Tiong Nam Logistics Holdings Bhd with a “hold” call and a target price of RM1.40, based on the prospects of the logistics player moving forward.
Tiong Nam is a beneficiary of the industrialisation in Iskandar Malaysia, and is also looking to ease energy-related costs, according to UOBKH.
“We expect the logistics segment’s revenue to grow 7% in 2016, driven by higher cargo volumes and better utilisation rate at its warehousing assets. Across Malaysia, Thailand and Singapore, Tiong Nam manages 75 warehouses with a combined storage capacity of 4.3 million square feet,” said UOBKH.
The research house also noted that the group leverages on its wide presence in Johor to be a significant logistics services supplier to the industrial, electronics and electrical, and fast-moving consumer goods industries. Tiong Nam is also poised to benefit from the industrialisation of Iskandar Malaysia due to its presence in Johor.
Tiong Nam also carries the title of the leading cold-room provider, which is a niche, high-growth segment that commands premium rental rates and margins.
There has also been word that the group could be injecting its expansive warehouse assets into a real estate investment trust (Reit) in a joint exercise with the controlling shareholder’s personal warehouse assets.
“This would unlock the value of these warehouse assets and potentially allow Tiong Nam to book revaluation gains. Should this materialise, we reckon the gearing ratio will reduce significantly from 0.9 times to nett cash level and further value could be unlocked via tax-free incentives at the Reit segment,” said UOBKH.
The group also receives boons from its property segment, with property projects worth a combined gross development value of some RM1 billion, with just over RM320 million in unbilled sales currently.
The group’s 254-acre land bank, located mainly in Johor and Shah Alam, should help sustain decent sales of mainly industrial and commercial properties all the way to the group’s 2018 financial year, according to UOBKH, as the group would then be capitalising on the rising industrialisation in Iskandar Malaysia.
At the end of the trading day, Tiong Nam’s shares were last traded at RM1.25 per share, down 4 sen.
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