Who will be the preferred COVID-19 vaccine logistics provider?

HOW prepared is Malaysia in terms of logistics and warehousing network to cope with the handling and storage of the much anticipated COVID-19 vaccine before it arrives in Malaysia?

Such a facility is crucial given that the vaccine will have to be shipped and centrally stored at minus 70° Celsius environment.

In this regard, TA Securities Research understood from Malaysia Airport Holdings Bhd (MAHB) that the country has deep-freeze warehouses at the cargo terminal that belongs to Pos Aviation and MAS Kargo.

“However, we believe the two cold rooms can at best operate at temperature up to minus 40° Celsius,” wrote analyst Tan Kam Meng in a transportation sector update.

A check by the research house with one of Malaysia’s largest listed warehouse operator, Tiong Nam Logistics Holdings Bhd, also indicated that the company’s cold room operations can only cope with minus 40° Celsius.

To handle the vaccine distribution, Tiong Nam may need a new purpose-built cold-cum-clean room that is built using massive amount of polyisocyanurate and polyurethane panels to maintain the super cold temperatures, according to Tan.

“This cold room could be semi-automated to keep vaccine in tightly controlled temperature while complying with safety and health regulations,” explained the analyst. “Also, it must have a fleet of refrigerated trucks to distribute the vaccine nationwide.”

All-in, TA Securities Research does not believe any inexperienced company without track record can easily jump into the bandwagon to ride on vaccine news given the complexity of the project and the capex involved.

“Having said that, we see a glimmer of hope for existing logistics players, especially those involved in third-party logistics (3PL) who have vast distribution network nationwide and financial strength, to participate in vaccine’s value chain or potentially tied up with licenced distributors in Malaysia,” opined Tan.

According to him, Tiong Nam and Tasco Bhd have extensive experience in 3PL supply chain management. More importantly, these two listed companies have existing cold room operations and a fleet of refrigerated vehicles in Malaysia.

Another potential candidate is DKSH Holdings Malaysia Bhd which already has an entrenched position in the logistics industry for healthcare products.

“For Tiong Nam, the company already has more than 200 box and reefer trucks and six cold rooms in Malaysia,” noted Tan. “It can also build a new cold room on a vacant land it owns at Sepang.”

With the latest development, TA Securities Research raised Tiong Nam’s target price to 88 sen/share (from 56 sen previously) while maintaining its “buy” rating after factoring in the near-term earnings risk due to the COVID-19 pandemic and the new business opportunity in vaccine storage and distribution.

At 12.30pm, Tiong Nam was up 1.5 sen or 2.73% at 56.5 sen with 2.23 million shares traded, thus valuing the company at RM260 mil. – Nov 16, 2020

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