TIONG Nam Logistics Holdings Bhd is poised to benefit from the easing of disruption to the global supply chain following the reopening of China’s economy in March, according to TA Securities Research.
In tandem, the research house expects Tiong Nam’s logistics and warehousing businesses to start recovering gradually in 1QFY21 (2QCY20) with the pace likely to escalate in 2QFY21 after the reopening of Malaysia and US economies in May and June.
“As far as debts and interest expenses are concerned, the company has received approval to defer the principal repayments for six months, especially those loans used to finance its hotel business,” TA Securities analyst Tan Kam Meng wrote in a report today. “This would likely ease cash flow constraints in the near term.”
According to TA Research, Tiong Nam’s FY20 earnings performance came in below its expectation and consensus estimates. Stripping out fair value gains (RM7.6 mil) and writeback of impairment of receivable (RM3.4 mil), the company’s FY20 core profit slipped into a loss of RM5.7 mil against the research house’s profit projection of RM10.5 mil.
“The variance was largely due to higher-than-expected depreciation and finance costs as a result of change in accounting standard (MFRS16) as well as higher-than-expected tax expense,” justified TA Research.
Moving forward, the research house downgraded Tiong Nam’s FY21-22 earnings projections by 52% and 6.9% respectively to factor in (i) additional leased assets that contributed to higher depreciation and finance costs under MFRS16; and (ii) a 50-basis-point interest rate cut in May 2020.
Valuation-wise, TA Research trimmed Tiong Nam’s target price to 55 sen from 57 sen previously based on unchanged 0.4x FY21 net tangible asset (NTA) per share.
Maintaining its buy rating on Tiong Nam, the research house opined that it is unjustifiable for the company to be trading at 0.27x FY21 NTA given that its substantial income-generating warehouses can be monetised or REIT-ed in the future. – June 23, 2020
